Kubota Corp to increase its Stake in Escorts Ltd
The Nanda family has been looking at monetizing its stake in Escorts Ltd for some time now and the first step may have been just about been taken. The buyer, Kubota Corp of Japan, may look to increase its stake from 9.9% to 15% in the first stage and then will look to take a control stake in the company. It will begin with acquiring the stake held by the promoters (Nanda group) in Escorts Ltd.
Escorts Ltd is one of the fastest growing tractor and agricultural equipment manufacturers in India. In the last 2 months, the stock is up 33% from Rs.1,137 to Rs.1,523. Between late 2015 and 2021, Escorts has been a 10-bagger, appreciating from Rs.159 to Rs.1523. Kubota is a leading Japanese agriculture and heavy equipment company with a market cap of $27 billion and is almost 10 times the size of Escorts.
The Nikhil Nanda group holds a total of 36.59% in Escorts. In March 2020, Kubota of Japan had acquired 9.9% stake in Escorts through preferential offer. Out of the Nanda family holdings, nearly 25% is held in the names of the Escorts Benefit and Welfare Trust. Buying out the promoter stake in Escorts gives a substantial stake to Kubota and they would eventually look to take a controlling stake in the company.
For Kubota Corp, Escorts offers the perfect fit. Kubota has aggressive plans in the Indian agricultural sector and Escorts fits in perfectly. After all, Escorts is the fourth largest tractor manufacturer in India with a market share of 11.3%. Interestingly, Kubota’s stake buy in Escorts last year via preferential issue was at a price of Rs.850, so the stock has nearly doubled from that price.
The Indian agricultural sector has been growing at 3.5% to 4% in the last 2 years and has been robust even through the pandemic. As Indian farms mechanize, Kubota sees a huge opportunity in the Indian agri sector. The Escorts acquisition surely fits in, although Kubota is yet to confirm its intentions by way of a statement.
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Sansera Engineering IPO - Grey Market Premium
The Rs.1,282.98 crore offer for sale of Sansera Engineering IPO had been priced in the band of Rs.734 to Rs.744 per share. The issue had closed on 16-Sep and the basis of allotment had been finalized on 21-Sep. With demat credits to eligible shareholders on 23-Sep, the stock is slated to get listed on the bourses on 24-Sep, Friday. Ahead of listing, one of the key information metrices of evaluating the potential listing is the grey market premium (GMP).
While the GMP is not an official price point, it is a popular informal price point. That is a good gauge of informal demand and supply for the IPO and gives a broad idea of how the listing is likely to be and how the post-listing performance is likely to be. While the GMP is just an informal approximation, it is generally observed to be a good reflection of the real picture. More than the actual price, it is the GMP trend that matters.
One of the key factors that impacts the GMP is the extent of oversubscription and the Sansera Engineering issue was oversubscribed 11.47 times overall. On a granular basis, it was the QIB segment that saw 26.47X subscription while the other two segments were relatively lower. That has surely made the GMP premiums quite muted in the informal trading market.
As per updates on Thursday, 22-Sep, the Sansera Engineering IPO is commanding a premium of Rs.38-40 range on the issue price. The GMP was steady at around Rs.35 for the previous 3 days but on Thursday, the stock GMP has spiked sharply to the range of Rs.38-40. The GMP did see a spike after the sterling response to the Paras Defence IPO.
That translates into a 5.4% premium over the issue price of Rs.744 at the upper end of the price band. Also, it hints at a listing price of approximately Rs.784 when the stock lists on Friday 23-Sep. Of course, subsequent price performance will depend on the selling pressure that emerges during the day.
Sansera Engineering IPO - 7 Things to Know
What the FED Meeting Outcome Mean for Global and Indian Markets?
When the meeting of the Federal Open Markets Committee (FOMC) concluded on 22nd September, nothing really conclusive was really expected. To that extent, the FED did not disappoint.
FED chair, Jerome Powell, refrained from making any commitment on the timelines of the taper or on interest rate hikes. However, Jerome Powell did indicate that the “Taper may soon be warranted”. That was as ambiguous as it could get.
There are two events that may have triggered this statement. Firstly, the US is still contending with the debt ceiling and is unlikely to make any commitment on taper till that is resolved.
Secondly, with Evergrande of China on the throes of bankruptcy, there is a pall of uncertainty surrounding global markets. The statement is intended to give the FED an escape route, should the global market situation worsen in the coming weeks.
The FED has constantly harped on two key factors to decide on the taper and the rate hike; inflation and full employment. For August, the headline inflation was 5.3% with core inflation at 4%, well above the FED target of 2% inflation.
However, FED considers this inflation spike driven by transitory factors and should taper once supply lines are restored. Joblessness at 5.2% is still way above pre-COVID rate of 3.5%, indicating lakhs of missing jobs.
Tapering will depend on substantial further progress on inflation and labour data. That is still elusive. Till the time joblessness gets to 3.5%, FED is unlikely to consider rate hikes and till the Evergrande issue and debt ceiling is resolved, there will likely be no tapering.
For global markets, it means a semblance of stability for now. India stands to benefit in 3 ways. Firstly, the liquidity flows will continue as tapering look still some time away with indications only likely in November.
Secondly, delayed tapering and rate hikes mean rupee will remain strong, or at least stable for the time being. Above all, it gives Indian economy more time to set itself on an assured growth path by year end.
In economics, quite often, doing nothing is the best decision. The FED appears to have perfected that art!
Also Read: Will the Indian Rupee be Under Pressure this Week?
Data Patterns files DRHP for Rs.700 crore IPO
With the success of the Paras Defence IPO, there are likely to be more defence service companies that are likely to hit the market. The latest case is Data Patterns that has just filed its DRHP with SEBI for a proposed Rs.700 crore IPO. The IPO will comprise of Rs.300 crore raised by way of fresh issue plus an offer for sale (OFS) of 60.707 lakh shares by the promoters and other shareholders.
Promoted nearly 30 years back, Data Patterns, is a reputed defence service provider based out of Chennai. Its core strength areas include design and development across hardware, software, firmware, mechanical and product proto types. The company is also into functional testing and validation. Its solutions are used in the Tejas LCA, light utility helicopters, BrahMos Missiles, precision radars and electronic intelligence systems.
The client list of Data Patterns largely includes PSU defence companies as well as government advanced research organizations like the DRDO and ISRO. It also works with PSU defence companies like Bharat Electronics and Hindustan Aeronautics, among others. Its order book stood at Rs.178 crore in 2018 and has since grown rapidly to touch a level of Rs.582 crore in the month of August 2021.
For the financial year ending FY21, the company reported revenues of Rs. 224 crore and net profits of Rs.56 crore implying a healthy net profit margin of 25%. The profits have grown nearly 2.5 times on a YoY basis. Data Patterns has gained immensely from the government decision to in-source as much as feasible of defence orders domestically as part of its Make in India and Atma Nirbhar programs.
The promoters of the company hold 59.95% stake in the company before IPO and the company is backed financially by Florintree Capital Partners. Incidentally, Florintree Capital was floated by Matthew Cyriac, the former India head of Blackstone Capital. He was one of the early investors in the company.
Paras Defence & Space Technologies IPO Subscription Day 3
The Rs.170.78 crore IPO of Paras Defence & Space Technologies consists of a fresh issue of Rs.140.60 crore and an offer for sale or OFS of Rs.30.18 crore. The issue was fully subscribed on Day-1 itself and by the end of Day-3 it was heavily oversubscribed. As per the combined bid details put out by the BSE, Paras Defence & Space Technologies IPO was subscribed 304.26X overall at the close of Day-3 of the IPO. The bulk of the demand came from the HNI segment followed by QIBs and retail. The issue closed on Thursday, 23rd September.
Check: Paras Defence & Space Technologies IPO Subscription Day-2
As of close of 23rd September, out of the 71.41 lakh shares on offer in the IPO, Paras Defence & Space Technologies saw bids for 21,726.32 lakh shares. This implies an overall subscription of 304.26X. The granular break-up of subscriptions saw all the 3 segments robust at the close of Day-3. QIB bids surged on the last day of the IPO.
Paras Defence & Space Technologies IPO Subscription Day - 3
Qualified Institutional Buyers (QIB)
Non Institutional Investors (NII)
The QIB subscription was subscribed 169.65 times at the close of Day-3. On 20 September, Paras Defence & Space Technologies did an anchor placement of 29.275 lakh shares at the upper end of the price band of Rs.175, raising Rs.51.23 crore. The list of QIB investors including a number of marquee names like Ashoka India Equity, Abakkus Emerging Opportunities Fund, Saint Capital, Nippon India Fund and HDFC Mutual Fund.
The QIB portion (net of anchor allocation) has a quota of 20.18 lakh shares of which it has got bids for 3,423.38 lakh shares, implying a subscription ratio of 169.65X for QIBs at the close of Day - 3. QIB bids, as usual, got bunched on the last day but the net impact was still positive.
The HNI portion got subscribed 927.70X (getting applications for 14,257.44 lakh shares against the quota of 15.37 lakh shares). This issue saw robust response from Day-1 and this phenomenal response could be due to the small size of the IPO. Bulk of the funded applications and corporate applications came in on the last day.
The retail portion was subscribed a whopping 112.81X at the close of Day-3, showing strong retail appetite. For retail investors; out of the 35.86 lakh shares on offer, valid bids were received for 4,045.49 lakh shares, including bids for 3,066.90 lakh shares at the cut-off price. The IPO is priced in the band of (Rs.165-Rs175) and has closed on 23rd September.
Paras Defence IPO - 7 things to know