Wednesday’s Market Preview: Flat-to-positive start indicated

The Indian market is likely to witness a flat-to-positive start today on supportive global cues. Wall Street settled mixed as the Federal Open Market Committee (FOMC) reiterated its stand to infuse more money, if required, to boost the economy. Markets in Asia were in the green in early trade on assurance from the Fed to boost the sagging economy. The SGX Nifty was up 11 points at 6,026 against its previous close of 6,015.

The market saw some consolidation on Tuesday. While the Sensex and Nifty touched their intraday highs in early trade, profit booking took away all the early gains plunging the indices into the red. The market managed to recover from the lows but range-bound trading resulted in the market closing with marginal gains. Finally the market closed with gains of nearly half a percent. The Sensex ended 95.45 points (0.48%) higher at 20,001, after touching a high of 20,088, last seen in January 2008. The index touched a low of 19,861, intraday. The Nifty settled above the 6,000 mark at 6,009, up 28.60 points (0.48%).

The US market closed mixed on Tuesday as the Federal Open Market Committee (FOMC) reiterated its stand to infuse more money, if required, to boost the economy. However, it kept its overnight interest rates steady at near zero levels. In other news, US housing starts surged in August to their highest level in four months, while permits for future construction rose, indicating the housing market was beginning to stabilise.

The Dow was up 7.41 points (0.07% at 10,761. The S&P was down 2.93 points (0.26%) at 1,139. The Nasdaq was down 6.48 points (0.28%) at 2,349.

Markets in Asia were in the green on assurances from the US Federal Reserve that it would infuse more funds, if required, to boost the sagging economy. Besides, indications that the US housing market was beginning to stabilise also boosted stocks in the region.

The Hang Seng was up 0.11%, KLSE Composite was up 0.03%, Nikkei 225 added 0.03%, Straits Times rose 0.25%, The Chinese, South Korean and Taiwanese markets were closed for local holidays.

India's gross domestic product (GDP) is expected to grow at 9.2% in FY11 on the back of spurt in economic activities, Centre of Monitoring Indian Economy (CMIE) said in its monthly review.

The GDP had grown 7.4% in the preceding year.

The economy think tank has maintained a 9.2% growth projection for FY11 since March 2010. It expects the three broad sectors of the economy (industry, services and agriculture) to improve their performance in FY11.

The industrial sector, including construction is projected to grow by 9.4% in FY11, better than the 9.2% growth in FY10. The services sector is projected to expand by 10%, compared to 8.6% last year led by the growth in trade and transport segment.


VA Tech Wabag’ IPO prospects look good

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

Post-listing details
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).


  •  It has executed more than 2,250 projects over the last three decades in more than 19 countries across the world.
  • The company has completed the Perungudi plant on a design-build-operate (DBO) basis where it constructed a plant with a capacity of 54 MLD and has an O&M contract for a period of 10 years.
  • As on 30 June 2010, the company has an order book of Rs1,860 crore.
  • The company mainly concentrates on executing turnkey projects while the civil work is outsourced to contractors, which helps bring scalability and allows it to focus on the core activities like engineering, design and technology. Out of the 113 projects completed by the company, 83 were turnkey projects wherein civil works, construction and erection work was outsourced to third parties.
  • The company has a debt-free status. It has net worth of Rs40 crore as of 31 March 2010.
  •  Execution risks that typical in project business; ability to execute orders in a timely manner, meeting guaranteed performance requirements and within budgeted costs would be crucial.
  •  Technically qualified and experienced management team. Access to know-how/patents held by its subsidiary is also a positive.


  •  The company is heavily depended on municipal corporations of various state governments as 88% of its order book as of 30 June 2010 was contributed by municipal clients. There could be delays due to change in the central or state government, changes in policies, changes in budgetary allocation, lack of funds or the lackadaisical approach of the government departments to make quick decisions which could affect the business.
  • It derives a major chunk of its revenues from a limited number of clients. The five clients accounted for 66% of revenue and 82% of the order book in the year ended 31 March 2010.
  • It faces stiff competition in the bidding process from domestic and foreign companies.

Financial Snapshot

  • Net profit- Rs44.05 crore as on 31 March 2010
  • Total income - Rs1,233.76 crore as on 31 March 2010
  • Net cash flow negative at Rs26.17 crore as on 31 March 2010
  • Operating profit -Rs111 crore as on 31 March 2010
  • Cash and cash equivalents - Rs161 crore as on 31 March 2010


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.


  • To fund its working capital requirements at Rs64.50 crore
  •  Construction of a office at Chennai for Rs34.74 crore
  • Implementation of global IT systems for Rs11.05 crore

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.

Concluding notes

Based on the EPS and PE compared to its peers, the issue looks fairly priced. Investors can consider subscribing to this IPO.




7 years ago

va tech looks strong at the time of listing after huge subscription of investor.What you are thinking for the listing?


7 years ago

Over dependence on clients type - muncipalities - local bickerings involved n financial positions of our muncipalities a skip at this stage can be given. Nothing wrong with the co. - Borkar

k a prasanna

7 years ago

The company is demanding a valuation of around 30 times of its FY 10 earnings, which is justified, taking into the account, the MNC status, the segment the company is in and its future prospects. The company offers complete life cycle solutions in water treatment. Good track record in executing large and complex projects. INVEST. FIRST CHOICE IPO.

Plan panel expects farm sector to grow by 5-6%, GDP by 8.5%

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.


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