Prakash Steelage IPO: Pricing appears fair, but debt remains a worry

Its post-issue equity dilution PE works out to 10.80 (at the upper band) and 9.82 (at the lower band) based on the EPS of FY10, while industry average PE is 16.70

Mumbai-based Prakash Steelage Ltd (PSL), a manufacturer of seamless & welded stainless steel pipes, tubes and U-tubes, hits the primary market on 5 August 2010 to raise Rs62.50 crore-Rs68.75 crore. PSL has fixed the IPO price band at Rs100-Rs110 per share. The company is offering 62.50 lakh shares at a face value of Rs10 each.

Qualified Institutional Buyers (QIBs) and Non-institutional Investors (NIIs) have been allotted 30.75 lakh and 9.22 lakh shares respectively. Retail investors will be entitled to 21.52 lakh shares.

PSL's production is done at its two units situated at Silvassa and Umbergaon with total installed production capacity of 12,200 metric tonnes per annum (mtpa).

The issue opens on 5th August for QIBs and closes on 9th August. Bidding for retail investors and NIIs closes on 10th August. 

For the year ended 31 March 2010, PSL's EPS (earnings per share) was Rs15.84. The industry average PE stands at 16.70. At the end of the last fiscal, its debt-to-equity ratio stood at 2.77:1. 

With the post-issue equity dilution, the PE works out to 10.80 at the upper band and 9.82 at the lower band, based on the EPS of FY10.

PSL reported a net profit of Rs17.82 crore on net sales of Rs437.10 crore for the year ended March 2010. Its total income stood at Rs438.38 crore for the same period.

Following a search-and-seizure conducted by Income-Tax authorities in February 2009, the company filed a voluntary declaration of undisclosed income to the tune of Rs15 crore for which it paid Rs4.87 crore as tax on 25 February 2009.

On 6 July 2009, the company again received a notice under the provisions of Section 153(A) of the Income-Tax Act, 1961, directing it to file a true and correct return of total income for the assessment year (AY) 2003-04, AY 2004-05, AY 2005-06, AY 2006-07, AY 2007-08 and AY 2008-09 from the I-T Department.

PSL plans to buy plant & machinery worth Rs33.67 crore and other fixed assets worth Rs1.68 crore from the proceeds of the IPO. As on 31 March 2010, the company had an outstanding unsecured loan of Rs42.80 crore.

The IPO proceeds will also be used to fund expansion of its existing manufacturing facility at Umbergaon at a cost of Rs48.55 crore, and meet additional working capital requirements. 

Keynote Corporate Services is the lead book running manager to the issue. Rating agency Credit Analysis & Research Ltd (CARE) has assigned an 'IPO Grade 2' to the proposed offering, indicating 'Below Average' fundamentals. 


The visible hand and unintended consequences

Government policies — both in developed and emerging markets — to smooth economic cycles may in fact be simply increasing volatility

July in the US is one of the hottest months of the year. It certainly was on the US stock markets. The S&P has climbed almost 10% since the end of June. It has mimicked the rally that occurred this spring. Does this portend the beginning of a persistent recovery or is something else happening?
It was due to earnings. In both cases the rallies were caused by earnings, really good earnings. The present level of earnings for many companies and their forecasts of future growth have led to higher valuations for many US companies and a rise in their stock prices. Is this a prediction for better times? Probably not, but it does tell us something very important.
To start, earnings are always suspect. Accounting allows for many variables. Revenues can be brought forward, pushed back, extended, expanded, hidden, distributed or they can simply be made up. The same is true with costs.
Earnings are also retrospective. They represent information that can be several months old. They are based on trends and decisions of the past, not the future. So rather than crystal ball, they represent a rear-view mirror.
Still, the earnings this season have been very good. They have exceeded expectations by more than 10%. In the US markets with over 70% reporting second quarter earnings, profits look to have grown 42% and profit margins nearly 10%. Some companies have done very well indeed.
The American delivery company UPS’ earnings jumped 71% on revenue growth of 13% with improvement across all business units. Its competitor FedEx forecast earnings to grow by 32%. Two Dow Jones components — the US heavy machinery manufacturer Caterpillar and  the chemical giant DuPont both did well as did Cummins Engine Company, whose second-quarter profit more than quadrupled.
In contrast, other US companies, specifically companies selling to consumers in the US like Home Depot, Kellogg, Colgate and CVS all had disappointing earnings. The difference is important. The UPS, FedEx, Caterpillar, DuPont and Cummins earnings all had one thing in common. Most of their profits came from international sales and for international sales read Asia. For DuPont the Asia-Pacific region increased revenue by 47%. Cummins realised two-thirds of its revenue outside of the United States. UPS volumes in Asia grew over 40% and international operating profits soared 78%. The companies that did not do as well were focused on the US.
This is hardly news nor unexpected. It is common knowledge that emerging markets have been growing faster than developed markets. Recently markets have fallen because the recovery in the developed countries seemed to be in danger. Developed markets were plagued by worries about sovereign default and double dips, most of which turned out to be overblown. Now they are rising because of expectations of future growth in younger economies. But what if this is about to change?
Emerging markets have a different problem. Rather than slowing, they have been overheating. The main cause for concern in emerging markets right now is inflation. In India, Pakistan, Egypt and Vietnam the inflation rate is already at double digits. The Reserve Bank of India has raised interest rates in an effort to get ahead of the problem, but they already may be behind it. Inflation is accelerating.
In theory China’s inflation is contained. The government has imposed restrictions on the real-estate market to try and return the price rises to something that looks vaguely sane. But it has announced targets for new loans for 2010 at 7.5 trillion renminbi ($1.1 trillion). This is 90% more than the 4 trillion renminbi ($585 billion) in new loans extended in 2008. The mere size of this lending spree must ultimately unleash inflation. It has already created a potential loan default rate of 23% and rising. No doubt China’s tightening, if it is in fact tightening, is just beginning.   
It is really a question of the effectiveness of monetary policy. The fear has been that the loose monetary policy in developed markets would spark inflation. It hasn’t, but so far it has not been very effective in stimulating growth. In contrast, the contractions in emerging markets are supposed to cool inflation. If they don’t, will the monetary authorities in emerging markets follow their developed market colleagues and just apply more of the same medicine? If they do, will it choke off the present source for much of the world’s growth?
The real point is that despite the assurances of central bankers, government attempts to control markets can have enormous unintended consequences. Policies to smooth economic cycles may in fact be simply increasing volatility. The fall is coming and it is a season of dramatic change, for both the weather and the markets. The earnings optimism is likely to be as short as summer itself.

(The writer is president of Emerging Market Strategies and can be contacted at [email protected] or [email protected]).


Anchor Toothpaste: Desperate measures

It looks like the manufacturers of this product have run out of new or relevant ideas on how to push the brand

'Daant fit toh life fit'. That's the new message from Anchor toothpaste. Well, er, we knew that already, no? I mean, you can't be having a good life if you are in urgent need of a root canal, correct? Or, for that matter, 'Kidney fit toh life fit', 'Heart fit toh life fit', 'Kaan fit toh life fit' are also valid, right? So then what are they saying out here?
Well, I suspect makers of Anchor Toothpaste could simply not find anything new or relevant to say for their brand. Germs and plaque have become infra dig.

Colgate has already hired all the dentists in the country to plug their different variants (isn't that against ASCI guidelines? Does anyone care?). And Close Up has adopted street kissing and made it its own. So it seems the poor Anchor guys had no option but to weave in a convoluted tale. A while back, they called Anchor Toothpaste a '100% vegetarian product' (whatever that means), but clearly that either didn't work out with the veggies, or they have switched loyalties. 
So now they are asking you to have a blast in life, with the help of power teeth. The TVC stars an exuberant young bride (who looks like she stays at Malabar Hill). She obviously has spent more time in her life at spas and Page 3 parties rather than inside a kitchen. She's seen trying to bake a cake for her beefcake partner. Grooving and dancing (an ancient Hindi film song belts away in the background), she botches it up and sends the cake crashing into the dirty wall. But since it's turned out steely-hard, nothing happens to it. The hubby (who looks like he stays at Nalla Sopara) doesn't want to displease a pretty new bride (you don't want to upset Malabar Hill girls!), and chews it away as if it was popcorn. Such are his steely teeth, courtesy Anchor.   
The verdict: It's not going to work. There's nothing in the commercial about what's so hot inside Anchor toothpaste that I must believe in this sort of a claim.

It's a straightforward lifestyle commercial, where the brand manager is clearly hoping, praying, that some execution trick will inject life into sales. That's really narrow thinking. People will recall the bumbling bride (and maybe her entirely mis-matched hubby), but not Anchor.
Perhaps the brand should get back to being vegetarian again. 




6 years ago


Dear SIR,

I have a littel idea for new packing pls give me a chance to explain to you over mobile

Thanking you,
kalpesh shah


6 years ago

Nice ad.........


6 years ago

As long as celebrities keep endorsing products in return for obscene sums and advertisements become the backbone for revenues to TV channels, we are not going to see things get any better.

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