Dinesh Engineers IPO Note - Not Rated

Dinesh Engineers IPO Note - Not Rated
IPO
by Nikita Bhoota 27/09/2018

Issue Opens: September 28, 2018
Issue Closes: October 03, 2018
Face Value: Rs 10
Price Band:  Rs 183-185
Issue Size: ~Rs 185 cr
Public Issue: 1 cr shares
Bid Lot: 80 Equity shares       
Issue Type: 100% Book Building

Shareholding (%)

Pre IPO

Post IPO

Promoter

100.0

74.7

Public

0.0

25.3

Source: RHP

Company Background

Dinesh Engineers is a contractor and turnkey player providing passive communication infrastructure mainly to the telecom operators and internet service providers (ISPs). The company’s business segments include (1) Vendor projects (89.8% of FY18 sales), executes projects which involve obtaining Right of Way (ROW) and laying duct and fiber; (2) as Infrastructure Providers (IP; 9.1% of FY18 sales), the company leases its own optic fiber network (OFC) of ~7,500 km (under IP-1 license) which runs across Rajasthan, Gujarat, Maharashtra, Goa, Karnataka, Andhra Pradesh and Telengana. (3) It is also laying gas pipeline for MGL (1.1% of FY18 sales). The company’s major clients are Airtel, BSNL, Reliance Jio, Vodafone, Idea, Tata Communication, etc.

Offer Details

The offer consists of fresh issue of 1cr shares (Rs185cr). The proceeds will be utilized to enhance OFC network by 5,400km for Rs156.4cr. The rest of the proceeds will be used to fund general corporate expenses.

Financials

Consolidated Rs cr.

FY16

FY17

FY18

Revenue from operations

122

169

302

EBITDA Margin %

22.7

27.0

35.7

Adj. PAT

12.9

22.0

61.8

EPS (`)*

3.3

5.6

15.6

P/E*

56.5

33.1

11.8

P/BV*

25.2

15.8

6.8

RoE (%)

44.6

47.8

57.2

Source: RHP, 5Paisa Research; *EPS &Ratios at higher end of the price band and on post IPO Shares

Key Investment Rationale

  1. The data transmission volumes are increasing rapidly given the rise in telecom subscribers, internet users and widespread digitalization. This has led to rise in demand for OFC installations, which are critical in telecom network expansion. Currently, fiberization is at mere 20%, while 80% is needed in order to ensure widespread roll-out of 5G in the coming years. Hence, Dinesh Engineers, in its capacity as an EPC player (vendor projects) is likely to gain from orders for fiberization, which involves laying down duct and fiber. Currently, the company’s order book stands at Rs420.4cr (~5,600km) executable over 6-9 months.

  2. Dinesh Engineers currently has own OFC network of more than 7,500km (duct- 4,009km and fiber capitalization -3,491km). The company’s capability to obtain Right of Way (ROW) faster is encouraging telecom operators and ISPs to avail of the company’s established network on a leasing basis. In the leasing business, the company receives upfront cash (Rs115.69cr in FY18) at the time of leasing of network. This leads to higher profitability (EBITDA margin is as high as ~75%) and returns leading to strong asset turnover.Hence, the company plans to expand the capacity of its own dedicated OFC network by ~5,740km in states of Maharashtra, Rajasthan, Karnataka, Madhya Pradesh and Andhra Pradesh. Moreover, current utilization level at mere 32% provides significant scope for growth.

Key Risk

Dinesh Engineers derives ~95% of its revenue from top 5 customers. This increases its business concentration risk.

Research Disclaimer

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Psychology of trading and the 14 stages of investor emotions

Psychology of trading and the 14 stages of investor emotions
04/10/2018

Most investors fail to be rational when it comes to making decisions while trading. Not everyone takes a sound and efficient investment decision every time. Instead, most decisions are based on the sentiments and emotions of traders. This, more often than not, leads them to incur massive losses while indulging in the stock markets.

The psychology of trading defines a specified range of emotions that an investor can go through while making an investment decision. Explained below are the 14 stages of investor emotions:

1. Optimism: This is the primary emotion of investors even before they enter the share market. The will to make money and the optimism that they will not incur losses encourages them to enter the market and buy stocks.

2. Excitement: As your ideas and decisions start to prove profitable, you begin to get excited and start considering what your life would be if you make it big in the share market. This motivates you to further invest in the market.

3. Thrill: As your investments begin to prove successful, you feel thrilled. You had never imagined you would be making such good profits. This emotion makes you feel proud of yourself, and take the first step towards overconfidence.

4. Euphoria: After making quick and easy profits, you begin to feel like a financial wizard and start to ignore the risks in your investment decisions. You expect that every trade you make from now on will be profitable no matter what.

5. Anxiety: This is the first time the market goes against you. Having made good profits until now, you feel agitated as you realize that you are also susceptible to loss. This emotion is the primary reason why investors identify themselves as long-term investors and wait until the market goes up again in the future.

6. Denial: When the market has still not rebounded even after waiting for a long time, you begin to go in the denial phase. You start to think that you have made poor choices and that it is time to sell your stocks and incur a loss. At this time, you still think that the market will go your way and that you will make profits on your investments.

7. Fear: You begin to worry as the market has still not risen and you now know that there is no way you are going to make a profit on your investment now. This is the emotion that demotivates most investors, making them think they should quit the market.

8. Desperation: You cannot believe that this is happening to you and you start to become desperate to seek any ideas from anyone and everyone. You look for ways to become profitable again so that you don't lose your money in the market.

9. Panic: Having exhausted every idea, you are at a loss of what to do next. This is the emotion that forces investors to question his/her knowledge and whether he/she should have researched before investing.

10. Capitulation: You understand at this point that you have made a bad investment decision and your portfolio will not increase again. This emotion enables the investor to consider selling his/her stocks to avoid further losses.

11. Despondency: Having incurred massive losses on your investments, you have decided to exit the market. You make up your mind about never buying stocks of any company. This emotion becomes the main reason why investors miss out on great financial opportunities as they are unwilling to trade irrespective of how good the opportunity is.

12. Depression: When you realize that you passed on an opportunity that could have gotten you great profits, you feel depressed and ask yourself: How could I be so foolish? This emotion gives you the required motivation that the market is still profitable for the ones who are careful enough.

13. Hope: As the market returns to its former glory, you revert to the market in the hope of making profits once again. This is the emotion that makes the investor more careful and eventually leads to profits.

14. Relief: Having made a profit once again, you feel relieved that you can still make profits in the market if you are careful enough. This emotion re-establishes the faith of the investor in trading and leads the investor to buy stocks once again.

While it is true that we can never fully avoid/control our emotions, knowing what emotions affect our decisions can go a long way in avoiding losses. Eventually, you will become a rational and successful investor.

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Should you hire someone to manage your shares?

Should you hire someone to manage your shares?
04/11/2018

Hiring a professional to manage your shares depends on your profession. Does your profession allow you extra time to manage your investments? As we know that the share market is full of uncertainties and price volatilities, it is a must to keep an eye on the same. It also depends on the amount you are investing.

Professionals understand the client's profile and risk-taking capabilities. With this data, a portfolio is designed and is diversified into different instruments like stocks, commodities, bonds, mutual funds, SIPs, forex, and IPOs. They also indulge in hedging through the derivatives market. After building the portfolio, the professionals also manage the same.

Let us take a look at the merits & demerits of having a professional manage your shares.

Merits

  • Professionals who cannot take out time for investment activities can benefit if a professional manages their funds.
  • People who are not aware of trading jargon and are not aware of how to invest can benefit.
  • The risk is potentially less when professionals manage our fund.
  • Organized portfolio building.
  • A senior citizen can benefit from hiring a professional to manage their shares.
  • Rookie investors can hire a professional as they would not be familiar with the events and things that affect the share market.
  • Professional can provide the right advice on what and when to invest.

Demerits

  • People may not be open to sharing sensitive data with someone else.
  • Trust plays a significant role.
  • Having a professional manage your shares would be an additional cost.
  • There is a risk of mismanagement.
  • Not recommended for people with small investments.

Who can manage your shares?

Fund managers, PMS (portfolio management system), wealth advisors, and also some banks provide advisory on share management. However, these entities mostly manage the portfolio of HNIs (high net-worth individuals).

It is not necessary to have someone to manage your investments even if you not aware of the trading techniques. You can still make investments in the stock market just by buying some services, like mutual funds.

Mutual funds are a pool of funds invested in diversified stocks. Based on your risk-taking capabilities, you can choose the type of mutual fund you wish to invest in, i.e., small-cap, medium-cap, or large-cap. The small-cap is riskier than the medium-cap, while large-caps are the least risky.

If you are not comfortable investing a lumpsum in a mutual fund, another way to invest can be through an SIP, i.e. Systematic Investment Plan. Here, the investments are made in parts, much like EMIs. This way, even if you are busy, you can still invest and earn profits.

In conclusion, it is more convenient to trade in share market when you have someone to manage your portfolio. However, with a little self-teaching and some experience, you can be your portfolio manager.

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Nifty 50 stocks with highest returns over past one year

Nifty 50 stocks with highest returns over past one year
05/11/2018

Indian equity markets have given spectacular returns in the past one year (May 10, 2017- May 10, 2018). In percentage terms, Nifty gave a return of 13.9% in the same period. Indian equity markets touched a new high in January 2018. Both the benchmark indices i.e. Nifty 50 and Sensex touched a closing high of 11,130 (January 29, 2018) and 36,283 (January 29, 2018) levels for the first time respectively. Waning effect of economic reforms like GST and RERA along with gradual pickup in corporate earnings supported the market rally.

However, over the two months i.e. February-March 2018, market has corrected sharply on account of implementation of LTCG from April 1, 2018 and speculation of trade war emerging between China and United States have additionally hurt the market sentiments.

The market started recovering on account of improved macro numbers such as inflation, IIP and GDP data, easing trade tension between US & China coupled with improving relation between North and South Korea supported the rally.

However, the rising crude oil price along with upcoming state elections will ensure that the market remains volatile for the remainder of FY19.

Below are 15 NIFTY 50 stocks that have given more than 20% return during May 10,2017- May 10, 2018

Company Name

10-May-17

10-May-18

Gain (%)

Titan Company Ltd.

482.4

973.1

101.7

Tech Mahindra Ltd.

430.4

663.6

54.2

Hindustan Unilever Ltd.

996.4

1,486.5

49.2

Tata Consultancy Services Ltd.

2,332.5

3,451.3

48.0

Reliance Industries Ltd.

679.6

981.2

44.4

Tata Steel Ltd.

416.8

594.2

42.6

Bajaj Finance Ltd.

1,327.0

1,837.4

38.5

Kotak Mahindra Bank Ltd.

927.7

1,247.5

34.5

IndusInd Bank Ltd.

1,431.9

1,885.4

31.7

Maruti Suzuki India Ltd.

6,737.8

8,705.0

29.2

Hindalco Industries Ltd.

187.1

241.3

29.0

HDFC Bank Ltd.

1,551.8

1,992.7

28.4

Mahindra & Mahindra Ltd.

688.2

856.5

24.5

Infosys Ltd.

943.7

1,168.0

23.8

Vedanta Ltd.

228.6

279.7

22.4

Source: Ace Equity

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Some Share Trading Terms You Should Know

Some Share Trading Terms You Should Know

Before even attempting to trade or invest, it is important to be familiar with the jargon used in the capital markets. Here are a few basic terms that should help a rookie investor get started.

  1. Equity trading

    Equity share trading refers to the selling and buying of stock of listed (public) companies. It can either be done by the investor or by a registered and authorized broker.

  2. Broker

    A broker is the person who handles the buying and selling of stocks/securities from the market on your behalf, i.e. mediates the trade with the stock exchanges. Put simply, he/she is the middleman who links an investor to the market in return for a commission on trades. One needs to acquire a license from the markets regulator to perform the functions of a broker.

  3. Depository

    A depository is an institution that holds the securities of listed companies. Three types of institutions are generally referred to as depositories, namely credit unions, commercial banks, and savings institutions. The primary function of a depository is to transfer the ownership of securities from one account to another after a trade has been made. They also advance business loans when needed.

  4. Exchange

    An exchange is the market where securities are traded. An exchange ensures the smooth functioning of the share market and the dissemination of legitimate information. It is a platform that allows listed companies, both private and government-owned, to sell their securities to interested investors. Stock exchanges were mainly developed to increase the amount of available capital for businesses to boost its growth and expansion.

  5. Custodian

    Any financial institution that acts as a guard for the securities from loss or theft is known as a custodian. They either hold securities in a physical form or a digital one. The custodian often performs other functions as well, like account administration, collection and distribution of dividend and interest, transaction settlements, foreign exchange, and tax support.

  6. Stop loss

    Stop loss is a feature that helps you sell your stock if it falls to a predefined value. It is designed to mitigate losses and is used by someone who cannot track the share’s position at regular intervals to make efficient trading decisions.

  7. Pay in and payout

    Pay in is the day when brokers deliver securities to the exchange. Similarly, payout is the day when exchanges deliver securities to the brokers. Exchanges declare payout days through a press announcement and brokers are expected to settle clients’ accounts within 24 hours of this notice.  

  8. Derivative

    A derivative is a security whose price is regulated by underlying assets like stocks, bonds, commodities, etc. They are called derivatives as their prices are dependent on other factors.

  9. Futures and options

Both futures and options are types of derivative security. While futures trading means the obligation and the right to sell or buy a security at a particular time in the future, options trading is the same minus the obligation part. The right to buy is known as the call option while the right to sell is known as the put option.

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Discovering Investment Wisdom from FIFA 2018

Discovering Investment Wisdom from FIFA 2018
07/11/2018

Pratik Shah was having the worst of the market turbulence. The combination of a weak rupee, trade war and mid-cap valuation concerns had made the markets extremely volatile. That meant stop losses were frequently getting triggered and he was slowly but surely depleting his capital. That was one side of the problem. His long term investment portfolio was loaded with banks and they were not doing too great. He was still positive on banks for the long term but to see his portfolio in the negative was really hurting. That was when Pratik decided to tune into the France-Uruguay quarter finals. As he saw the clinical French get the better of Uruguay, he realized that the match was holding some of the answers for him. In fact, as Pratik rewound to previous matches, he was gradually becoming clearer about where he was going wrong.

Handle volatility the way the French do

He realized that France had already scored a major victory over Argentina in the Round of 16 purely on the strength of better planning. Argentina, on the other hand, was overly reliant on Lionel Messi. You cannot handle volatility by depending on just one of your star players. That is exactly what was happening to his portfolio. His performance was too focused on a handful of sectors or a handful of themes. When the portfolio was not working or he was getting into trading losses, his focus should have been to play like the French. Have a series of strategies such that at any point of time one of them will work. Relying on the Messi and Ronaldo in your portfolio is not the answer. He had to adopt the French approach to his trading and investment activity.

How Russia handled the unexpected events

In the last few weeks, a lot of unexpected events had taken a toll on Pratik’s portfolio. Trade wars and a crash in the rupee were the least of the things he had anticipated. That was when he recollected the critical Round of 16 match between Spain and Russia. Spain was the clear favourite with its formidable reputation and its legendary game consisting of short passes (tiki taka). The game went into penalties and it was always going to be a toss-up. Goal keepers typically judge the direction and try to pre-empt the goal. That is when the Russian goalkeeper, Igor Akinfeev came up with some out of the box thinking. He got the direction wrong but still managed to salvage the situation with his out-of-the-box use of his feet. Pratik had been focusing too much on the turn of events rather than his game plan to pre-empt these events. Igor Akinfeev surely had a lesson for him.

Spread your risks both in trading and investing

Pratik was back to his quarter final match between Uruguay and France. On paper they were well matched but the only problem was that the Uruguayan team was overly dependent on the combination of Suarez and Roberto Cavani to give them the goals. With Cavani injured after the last match against Portugal, Uruguay just did not have an answer. Cavani had scored both the goals against Portugal and the combination of Suarez and others was simply incomplete. That was the mistake that Pratik too had made. He had created a strategy and was clinging on to it. Like France, he had to apply different permutations rather than get bogged down like Uruguay. The final result of 2-0 in favour of France was just a formality. Uruguay had lost the mental game long back. That is exactly what Pratik also risked doing. He needed to be more flexible and have a back-up plan in place. Above all, this back-up plan had to be constantly updated.

How Belgium did not lose hope or relevance

The match between Belgium and Japan was probably the most exciting match of the tournament. It has rarely happened in FIFA history that a team came back from 2-0 down to win the match in the most stunning fashion. By the middle of the second half, Japan was leading 2-0 and the Belgian fans had almost reconciled to being knocked out. But, not so the Belgian soccer team! They quickly regrouped and reworked their strategy. They realized that they had to make the best of the remaining 20 minutes without losing hope and optimism even for a split second. A concerted multi-flank attack ensured that the Japanese were confused and rapidly outplayed. The Belgian Red Devils managed to score three goals in succession. Pratik realized that had even a single Belgian player lost the hope and self-belief even for a brief moment, the game would have slipped out of their hands. That was a big takeaway for Pratik. He had let things drift and he was now losing his self-belief. That was not the answer. Pratik realized that Miracles don’t happen just like that and like the Belgians he too had to make it happen.