The government will raise Rs1,100-Rs1,200 crore by divesting its 10% stake in the engineering company. Is the FPO worth participating?
State-run Engineers India Ltd (EIL) is slated to hit the markets on 27 July 2010 with its follow-on public offer (FPO). EIL is offering 3.36 crore shares with a face value of Rs5 each. The company has set the price band at Rs270-Rs290 per share. On Monday, the stock has plunged 6.2% at Rs316.75 on the Bombay Stock Exchange (BSE).
The issue opens for qualified institutional buyers (QIBs) on 27th July and for retail and non-institutional investors from 30th July. The government is expecting to raise Rs1,100-1,200 crore through a 10% stake dilution. Post-FPO, government's stake will reduce to 80.40% from the current level of 90.4%.
EIL has provided consultancy and project implementation services to refineries, petrochemical complexes, offshore platforms, pipelines, ports, fertilizer and mining and metallurgy projects. In infrastructure, it has provided engineering consultancy services to airports, highways, flyovers, bridges and water projects. While EIL has a good track record and is the pre-eminent engineering and consultancy firm in the country, it continues to be hampered by government controls.
EIL posted a net profit of Rs114.56 crore for the quarter ended 30 June 2010 on net sales of Rs606 crore. For the year ended 31st March 2010, it reported a net profit of Rs439 crore. It had a negative cash flow of Rs130 crore as on 31 March 2010.
Its price earnings ratio (P/E) stands at 20.47 (lower band) and 22 (at the upper band) based on the EPS of 31st March, 2010 and 21.32 (annualised) as per the EPS of quarter ended 31st June, 2010.
Its net profit has dipped by 8% in the first quarter of this fiscal at Rs114 crore compared to Rs125 crore in the fourth quarter of FY 2009-10. Its net sales also saw a decline of 5% in the June quarter 2010 at Rs606 crore from Rs640.34 crore during the fourth quarter of FY2009-10.
Similarly, during the March quarter, EIL's net profit plunged 22% at Rs125 crore compared to Rs159 crore during the corresponding period last year. The company's net sales have grown at an average of 39% over the last five quarters while its operating profit has increased at an average rate of 69% over the same period.
The company has an order book of Rs6,236 crore as on 31 March 2010. HSBC Holdings Plc, ICICI Securities, SBI Capital Markets and IDFC Capital are lead book running managers to the FPO.
The company has set aside 7.12 lakh shares for employees and 1.15 crore shares are reserved for retail investors. Retail investors and employees will be entitled to the same discount through the book building route.
New Delhi: State-owned Coal India (CIL) is likely to file a draft prospectus next week for its initial public offering (IPO), billed to be India's biggest issue, through which the government expects to raise about Rs15,000 crore, reports PTI.
"The company's board is meeting on 5th August to finalise the draft red herring prospectus (DRHP) and in all probability, papers will be filed with market regulator Securities and Exchange Board of India (SEBI) within the first week of August," a person in-the-know of the development told PTI today.
Last month, the Union Cabinet had cleared the proposal to divest 10% of the government's stake in the world's largest coal miner through an IPO. The Centre holds 100% equity in the company.
Earlier, coal minister Sriprakash Jaiswal had said the share sale could be launched in October, terming the month "auspicious", as it coincides with the Durga Puja celebrations.
Sources said the IPO is expected to be launched on 18th October and will close on 21st October. The government is looking to raise between Rs12,000 crore to Rs15,000 crore through the share sale.
Although CIL's IPO was originally planned for August-September, it was delayed due to opposition from trade unions and political parties to the government's proposed 10% stake sale.
Coal India produced 431.5 million tonnes of coal in the last fiscal. The country's coal output stood at 531.5 million tonnes in 2009-10. The company is one of the cheapest suppliers of the raw material in the world, selling its coal at 50% cheaper rates than its global rivals.
Anil Ambani Group firm Reliance Power's (R-Power) IPO in January, 2008, is the biggest IPO in India so far. R-Power had raised Rs11,500 crore through its IPO.
The government aims to raise Rs40,000 crore through disinvestment of PSUs this fiscal.
New Delhi: The Reserve Bank of India (RBI) is likely to increase key policy rates by at least 25 basis points (bps) in its first quarterly review of the monetary policy tomorrow to tame inflationary expectations, reports PTI.
"I think there could be a small hike in the repo and reverse repo rate of say 25 basis points," HDFC managing director Renu Sud Karnad told PTI.
High inflation may prompt the RBI to tighten money supply by raising short-term lending (repo) and borrowing (reverse repo) rates tomorrow, say bankers.
"There is a clear bias for policy rates to move up for the reason that inflation is still very high and inflationary expectation is to be contained. The bias is going to be upward," Union Bank of India chairman M V Nair said.
"At that point in time, if the funding cost goes up, then the base rate will also go up. During the year, there is a clear bias for interest rates to move up," he added.
Punjab National Bank chairman K R Kamath said whatever decision the RBI takes, the banks will respond accordingly.
Mr Kamath further said that if the RBI raises the cash reserve ratio, that would put pressure on the cost of funds.
Earlier this month, RBI had raised the repo and reverse repo rates by 25 bps to tame inflation. Inflation is still in double-digits, led by high food prices, and stood at 10.55% in June. But food inflation eased marginally to 12.47% for the week ended 10th July from 12.81% in the previous week.
Meanwhile, the Prime Minister's Economic Advisory Committee (PMEAC) has also pitched for tightening money supply, as current inflation rate is more than double the comfort level and can hurt high economic growth in the medium-term. "A bias towards (monetary) tightening is necessary," the PMEAC said.
PMEAC head C Rangarajan said that if the RBI does not take strong monetary action to contain inflation, it can opt for a series of "baby steps" after its 27th July monetary review. "Evidence on the funds flow side, as well as on the output side, clearly shows a strong economic recovery.
In the backdrop of inflation rates that are more than twice the comfort-zone, it is important that monetary policy completes the process of exit and move towards a bias on tightening," he said.
Royal Bank of Scotland (RBS) managing director and head of markets Ramit Bhasin said the RBI is likely to hike its short-term lending rate by 0.5% to 6% and the short-term borrowing rate by 1% to 5% through 2010.
"As we go forward, there would be higher capital inflows and the current liquidity crunch will ease much sooner than expected. According to our estimates, the RBI is likely to up the repo by 0.5% and reverse repo by 1% by December," Mr Bhasin said.
Kotak Mahindra MF's Lakshmi Iyer said it is widely expected that RBI is going to hike rates by 25 bps.
Echoing similar view, Crisil chief economist D K Joshi said the focus for the RBI in the near-term would remain on curbing inflation. "We expect the RBI to hike the repo and reverse repo rates by 25 bps at on 27th July," Joshi said.