Washington: Indian industrialists would take up the outsourcing issue during the Indo-US Private Sector Advisory Group (PSAG) meeting here on Tuesday, reports PTI quoting Federation of Indian Chamber of Commerce and Industry (Ficci) president Rajan Bharati Mittal.
"Tomorrow (Tuesday), we will take in the PSAG (Private Sector Advisory Group) the outsourcing issue," Mr Mittal said ahead of the trade advisory group meeting on the sidelines of the Trade Policy Forum meeting, co-chaired by the Union commerce and industry minister Anand Sharma and his American counterpart Ron Kirk.
Mr Sharma arrived in Washington from Chicago on Monday evening and soon thereafter had a meeting with the Indian CEOs, here to attend the PSAG meeting.
"I have already told the minister (Mr Sharma) that as an industry body we are raising the issue of outsourcing," Mr Mittal said.
He added, "On the one hand they (Americans) are talking about Indo-US partnership in innovation and technology and allowing all services; on the other they are restricting peoples services. That's something which is not acceptable."
"This is a serious issue for India. This is an important issue for us and we will take this us seriously," he said.
When asked what was the response from the United States on the issues raised by India with regard to outsourcing and visa fee hike, he said it was a "cold response".
Notably, Mr Sharma is yet to receive the response to the letter he wrote to Mr Kirk on hike of categories of H-1B and L1 visas.
Besides outsourcing, the PSAG would be discussing three important issues — logistics and urban development; urban infrastructure and technology and services.
"We have put a paper from Indian side on urban infrastructure and logistics. They have put a paper on technology innovation and services," Mr Mittal said.
The issue is reasonably priced even though the ICRA grading for this IPO is low. This grading indicates below-average fundamentals. The company also operates in a highly fragmented market. Make your choice!
Price: Rs127-Rs135 per equity share
Bid lot: 50 equity shares and in multiples thereof
No of shares on offer at Rs127 per share: 82.68 lakh equity shares
No of shares on offer at Rs135 per share: 77.78 lakh equity shares
Issue size: Rs10,500 lakh
Issue duration: 22 September 2010 - 27 September 2010
Listing: BSE and NSE
Pre-issue promoter and promoter group holding: Cantabil Retail India Limited (CRIL) is promoted by Vijay Bansal who has over 20 years of experience in the garment and garment accessories industry. In addition to Vijay Bansal, there are two more promoter directors, Deepak Bansal (son of Vijay Bansal) and Swati Gupta (daughter of Vijay Bansal).
Currently, the promoters have a 99.99% shareholding in the company, which will come down to 50.84% - 52.3% post IPO.
At the lower price band of Rs127 per equity share of Rs10 face value, the PE works out to 14.5 times the EPS of Rs8.7 for FY2010 on post-IPO equity. At the upper band of Rs135, PE works out to 15.0. Listed companies in the readymade garments sector, Koutons Retail, Provogue and Kewal Kiran Clothing, have PE of 11.3, 26.1 and 15.2 times EPS of FY 2010; while the sector PE works out to be 13.7 times.
Post-issue promoters' stake at Rs127 per share: 50.84%
Post-issue promoters' stake at Rs135 per share: 52.3%
Incorporated in 2000, Cantabil Retail India Ltd is in the business of designing, manufacturing, branding and retailing of apparel under the brand names of 'Cantabil' and 'La Fanso'. It has a network of 381 exclusive retail outlets spread across India.
The 'Cantabil' brand with 206 exclusive retail outlets offers formal wear, party wear, casuals & ultracasual clothing for men, women and children in the middle to high income group. The 'La Fanso' brand caters to the men's segment in the lower to middle income group and focuses on casual, ultra-casual and formal wear. They also retail various accessories like ties, belts, socks, caps and handkerchiefs under their brands.
The company has three in-house manufacturing/finishing units and four warehouses located in Delhi. It also has three third-party dedicated manufacturing units. Cantabil Retail's stores are situated at Delhi, Mumbai, Kolkata, Bengaluru, Hyderabad, Pune, Jaipur, Ahemdabad, Baroda, Lucknow, Kanpur, Patna, Ranchi, Dehradun, Meerut, Ludhiana, Jalandhar, Udaipur, Agra, Ghaziabad and Gurgaon.
Objects of the issue:
The objects of the Issue are to raise funds for:
1. Establishment of new integrated manufacturing facility (Rs31 crore)
2. Expansion of exclusive brand outlets (Rs25 crore)
3. Additional working capital (Rs30 crore)
4. Repayment of debt (Rs20 crore)
5. General corporate purposes
*(All figures in Rs crore)
The net worth of the company as of 31 March 2010 is Rs2,957 lakh.
The cash & cash equivalents at the end of 31 March 2010 are Rs68.3 lakh.
Analysts' notes on financials:
ICRA has assigned an 'IPO Grade 2' to CRIL's IPO. This means as per ICRA, the company has 'Below Average Fundamentals'. ICRA assigns IPO grading on a scale of 5 to 1, with Grade 5 indicating 'Strong Fundamentals' and Grade 1 indicating 'Poor Fundamentals'.
The company has an established discount brand in the domestic apparel market with a diversified product portfolio for men, women and children. It has a wide network of exclusive retail outlets across metros, Tier-I and Tier-II cities in India. The proposed manufacturing facility will reduce dependence on third-party manufacturers and improve profitability. CRIL has a healthy financial profile with steady growth and improvement in operating profitability in the past. It has experienced promoters with around two decades of experience in the garment industry. There is also favourable demand outlook for organised retailing in the country.
The company's aggressive expansion plans may put pressure on the operating profitability as the company might adopt pricing strategy to gain market share in newer regions.
Increase in fixed costs such as rentals will have an impact on operating profitability; high working capital intensity coupled with rapid expansion in the past had resulted in negative fund flow from operations. This is likely to continue over the medium term as the company plans to scale up quickly by opening new stores and adding new product lines. Successful expansion of the retail network would be dependent on the ability to scale up and effectively manage the supply chain, especially given the high inventory requirements.
The market is highly fragmented and competitive, dominated by the unorganised sector.
Rising yarn and fabric prices could put pressure on the profitability of the company given the fragmented nature of the industry and vulnerability of retail sales to economic trends.
At Rs 127-Rs135, the issue is reasonably priced. Post IPO PE between 14.5 and 15 is close to PE of competitors in the readymade garments sector as well as sector PE of 13.7.
Curb your excitement. This rally is for momentum chasers
All these months, I had two medium-term scenarios in mind. One, after a 2,500 points rally in the Sensex over three months from the end of May, I felt we are about to give up some of the gains. A smaller possibility, which I have mentioned for several fortnights now, was that since institutional investors are ready to buy the dips and markets are trending up in the rest of the world, especially the troubled US market, the Sensex may go up further—all the way to 19,000 which would be followed by a violent downward move.
In leaning towards the first possibility, I was wrong about the market direction this time. The low-probability scenario has actually played out, even though fundamental and technical evidence were expected to weigh heavily on the market. For the record, corporate growth is slowing down; speculative positions in the market are huge; volatility has been low; and the recent move has been unusually long—stretched from late May to early September.
As I had said, it was a long rally and unusual at this stage of a bull market. We have had three months of rally without any meaningful correction, preceded by 15 months of rise. The market usually goes through a violent and substantial correction towards the end of such a long and continuous rally. We had said that “While there is every possibility of the market running away, thanks to the force of liquidity from foreign investors, there is no need to get tempted, certainly not by the large-cap, blue-chip stocks that are not cheap.”
Instead, what we got was a resounding upmove. At the time of writing, the Sensex is at 19,600. A 1,400-point move has come from nowhere, in just eight days of continuous rally. Does this change anything? We are in the camp that takes price signals seriously. While we don’t see fundamentals improving dramatically, and we don’t see how the Indian market can remain divorced from the slow growth in the rest of the world, we also recognise that an overvalued market can get even more overvalued. Haven’t we seen it in 2000, 2006 and again in 2008? As usual, foreign institutional investors cannot get enough of Indian stocks to buy. They have been pumping in thousands of crores of fresh money into India with the same anxiety as that of a passenger lunging at a train leaving the station.
There are two ways to play the situation. One, now that virtually everyone has turned bullish, there will be sharp rallies in highly volatile mid-cap stocks. They will yield quick gains if you can buy them before they make a big move, backed by a concocted story. As you can guess, we don’t advocate this. It is best played by hardcore professionals who have seen many such euphoric cycles and know very well how these end. The second strategy is to stay calm and wait for a sharp drop in prices and step in and buy stocks that are still cheap and growing. There are many such stocks. Since these are not what institutional investors buy, they are still available at reasonable valuations. Keep reading our Street Beat section and Cover Stories from time to time.
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