The company has a debt-free status and has completed more than 2,250 projects over the last three decades in more than 19 countries across the world
Price: Rs1,230 - Rs1,310 per share with a face value of Rs5 per share
No of shares: 36,69,643 equity shares that includes sale of 26,53,383 equity shares by India Advantage Fund 1, Dynamic India Fund 1, Rainbow Fund Trust, GLG Emerging Markets Fund and Passport India investments
Issue size: Rs125 crore plus Rs326 to Rs347crore by offloading 26,53,383 equity shares
Issue duration: 22nd September-27th September
Listing: BSE and NSE
Book running managers: Enam Securities Pvt Ltd and IDFC SSKI Pvt Ltd
Pre-issue promoter and promoter group holding: 37.45%
Consolidated restated EPS: Rs53.23 (FY10)
P/E ratio: 23.10(lower band) and 24.61(upper band)
Chennai-based multinational firm VA Tech Wabag Ltd is entering the capital market to raise Rs125 crore through a 100% book building issue. The company is engaged in providing turnkey solutions in water treatment to municipal and industrial clients having presence in India, the Middle East, North Africa, Central and Eastern Europe, China and South East Asia.
It provides complete life cycle solutions including conceptualisation, design, engineering, procurement, supply, installation, construction and operations and maintenance (O&M) services. VA Tech Wabag provides engineering, procurement and construction (EPC) and O&M services for sewage treatment, processed and drinking water treatment, effluents treatment, sludge treatment, desalination and reuse for institutional clients like municipal corporations and infrastructure sectors like power, steel and oil & gas companies. As on 31 July 2010, it has executed 113 projects and is currently executing 81 projects. It has R&D centres in Chennai, Vienna (Austria) and Winterthur (Switzerland).
It is constructing a 62.5 million litres per day (MLD) plant at Delawas near Jaipur for which it has O&M contract for 20 years. It has undertaken a turnkey project on a DBO basis with O&M contract of five years to set up a wastewater treatment plant in Tehran for the Tehran Sewerage Company with a capacity of 4,50,000 m3/d. The company has bagged a contract for a sea water reverse osmosis desalination plant with a capacity of 100 MLD in Chennai including an O&M contract for seven years. Besides, it has also completed a 455 MLD water treatment plant at Panjrapur for the Brihanmumbai Municipal Corporation (BMC).
IVRCL Infrastructure & Projects Ltd, Engineers India Limited, Thermax Ltd, Hindustan Construction, Nagarjuna Constructions and Gammon India have earnings per share (EPS) of Rs2.6, Rs 9.6, Rs20.7, Rs1.4, Rs7.6 and Rs9.8 respectively. They have a P/E of 63.2, 24.6, 32.5, 36.5, 19.2, and 20.8 respectively. The industry composite P/E is 41.2. Based on the FY10 EPS of Rs53.23 the P/E works out to 23.10 at the lower price band and 24.61 at the upper price band.
Analysts' notes on financials
Rating agency ICRA has assigned an 'IPO Grade 4' indicating 'Above Average Fundamentals' to the issue. The grading has been assigned based on Wabag's established position in the water/waste-water treatment project execution business, favourable demand prospects for the business driven by large investments in this sector and its comfortable financial position, characterised by growth in both revenues and profitability.
Based on the EPS and PE compared to its peers, the issue looks fairly priced. Investors can consider subscribing to this IPO.
New Delhi: The Planning Commission has said growth in the agriculture sector this fiscal would be as high as 5%-6%, which would help the economy to surge by 8.5% as projected by it earlier, reports PTI.
"I am absolutely certain that this year we are going to see more than 4% agriculture growth. My guess would be that we should be somewhere in the 5% to 6% range," Planning Commission deputy chairman Montek Singh Ahluwalia said on a popular business television channel.
He said, "The underlying logic of that (economic growth of 8.5% with upward bias) quite simple is that if you get an agriculture growth of something like 5% or a little more, which is possible, that alone will add one percentage point to overall growth rate of the economy."
About the concerns expressed by experts that the economic growth would slow down in the second quarter of this fiscal (July-September) due to base effect, he said, "It is not a cause of concern."
"The 8.5% growth, which is what we are calibrating or could be a little better. This only requires just about double-digit growth in industry. So there is a lot of room for industrial growth to slow down and for our aggregate growth performance to be on track," he added.
About the industrial growth, he said that the country would end the fiscal with double digit factory output.
Asked about meeting fiscal deficit target of 5.5% of gross domestic product (GDP), he said, "There is no doubt that the third generation (3G) auctions will add money, there is also a demand for expenditure. My own guess is that we would achieve fiscal target."
Expressing concerns over the price rise, he said, "I think indications are that when we get through present phase of higher inflation in vegetable which is result of rain and disruption and so forth ... we should be able to close to 6% (inflation) by December."
About the fall in Foreign Direct Investment (FDI) flows, he said, "I would not worry too much about the trend that you see over a few months' time. I think the overall climate for FDI in India is extremely positive."
FDI flows in the month of July tumbled 49% on a year-on-year basis. The data for the April-July period was also bleak, falling 27% year-on-year.
On discrepancy in data reported by the Central Statistical Organisation (CSO), he said, "we have a long way to improve the quality of this (data) what I would call high frequency data. Some of the high frequency data is very good."
CSO had to correct economic growth data for April-June quarter after discrepancies were pointed out by some experts.
Its revenue model is seriously flawed; and the more it transacts, the more money it will burn
In another bizarre example of how bourses are regulated and promoted in India, the United Stock Exchange (USE), India's fourth currency derivatives exchange cornered 52% market share on debut day (according to advertisements released by the exchange). Its turnover surpassed that of the National Stock Exchange (NSE) as well as the market leader MCX-SX on the very first day. Contrast this with the fact that the Bombay Stock Exchange (BSE), which now has a 15% stake in USE, had set up and shut down its own currency-derivatives market in a couple of months and you wonder what is going on.
Trading in currency derivatives is jointly regulated by the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI). They inaugurated a record three bourses in just a month and have now jointly inaugurated a fourth to replace the BSE's currency segment which shut down. Yet, the regulators have not found it necessary to look at a simple issue - what is the revenue model for these bourses, especially the third one?
It may be recalled that MCX-SX has dragged the NSE to the Competition Commission on the grounds that it is losing a large amount of money because NSE has chosen an anti-competitive strategy of not charging a transaction fee. In effect, the equity segment subsidises the currency derivatives. MCX-SX, a market leader, says that it is forced to do the same and is incurring heavy losses. In fact, both NSE and MCX-SX would have lost crores, based on their trading volumes. Since the regulator stipulates a Rs 100 crore continuous net worth requirement, it requires constant topping up of capital.
Into this scenario enters the trailblazing USE, which is backed by a number of banks and institutions, but has no other bourse to subsidise it. On day one, it makes news by cornering a 52% market share but also does not impose a transaction fee. So do the math: a higher market share would only mean a faster burn of its money.
Our question is, aren't the regulators - RBI and SEBI - required to check the business model of a bourse when they permit a fourth exchange to start operations while a case of anti-competition practices is already pending?
We asked SEBI and the RBI for a response. We also asked about the fact that a single substantial shareholder of the exchange Jaypee Capital reportedly accounted for over 80% of the turnover on debut. SEBI responded saying that it has left "pricing" to the bourses and cannot comment. On the turnover by a single broker, it said, it will collect and analyse the data before responding. Apparently, what is common knowledge in the market is unknown to the regulator even after such an astounding, record-making debut by an exchange.
How serious is this issue? Let's compare it with the two existing bourses operating in the currency derivatives space. According to sources, MCX-SX is sitting on a loss of around Rs110 crore. In one of its lawsuits, it has said that it is losing Rs5 crore a month. The exchange had a net worth of Rs314 crore as of 31 March 2010, meaning a third of it has already been eroded. The loss incurred by the NSE would also be in the region of Rs110 crore.
The USE on the other hand has a capital of Rs150 crore. If it incurs the same costs as MCX-SX and the NSE, it would lose around Rs25-30 crore by 31 March 2011 and the net-worth would be eroded to that extent at least. However, if USE continues to record twice the turnover of NSE and MCX-SX combined, its losses will be that much higher. Will its shareholders top up the capital to pay for this?
USE reported a turnover of Rs45,485 crore on debut day, compared to a combined turnover of Rs42,000 crore by NSE and MCX-SX. Apart from the BSE, its other shareholders are Jaypee Capital, Riddhi Siddhi Bullion, MMTC and India Potash and around 26 banks. Many of the banks are also shareholders of the NSE and MCX-SX.
According to market sources, a single trader, Jaypee Capital, who is also a significant stakeholder accounted for over 80% of the trading volumes. Concentration of trading among the top 10 traders is also very high on the two existing bourses, but significantly, the USE did not eat into the turnover of the other two bourses, but generated an all new market. Surely this is something that the RBI and SEBI need to examine in detail.
Interestingly, while inaugurating the exchange, RBI deputy governor Shyamala Gopinath compared bourses to "public utilities". It is interesting that SEBI, which has been mandating and standardising fees and often raising them substantially (arbitration fees) charged by bourses in the equity segment, has not found it necessary to recommend that they charge even a minimum transaction fee for their survival in the currency derivatives segment. It is exactly why MCX-SX has gone to the competition commission alleging bias and favouritism on the part of the market regulator. But such double standards in dealing with issues and cases has been the hallmark of SEBI regulation in the current dispensation. At the time of going to press, we are awaiting USE's response to our query on its revenue model.