LIC IPO: Govt. hires 10 bankers, and other details we know so far
The Narendra Modi government has ambitious plans of raising Rs 1.75 trillion via disinvestment during the current financial year, and is banking on generating a lion’s share of this money from the Life Insurance Corp (LIC) of India.
The government hopes that the initial public offering (IPO) of the insurance behemoth will help it mop up more than half the amount it has targeted to raise from disinvestment this year. If the plans do come to pass, LIC will become not only a money spinner for the cash-strapped government but will also be one of India’s most valuable companies with a market capitalization in excess of Rs 10 trillion.
Here’s a lowdown on the mega public offering and other key pieces of information we know so far.
What’s the size of the LIC IPO?
The government could be aiming to raise anywhere between Rs. 900 billion and Rs. 1 trillion from the IPO. This will make it India’s biggest IPO by a wide margin.
To be sure, the government will retain 90% of the insurer as only 10% of its shares are likely to be up for grabs. In fact, some reports say the government may even split the IPO into two parts with a gap of a few months since it believes the market may not have the appetite for such a large offering.
At what stage is the IPO preparation?
The government has just hired 10 merchant banks to arrange the share sale. These are Kotak Mahindra Capital Company, Goldman Sachs India Securities, JP Morgan India, ICICI Securities, JM Financial, Citigroup Global Markets India, Nomura Financial Advisory and Securities (India), Axis Capital, DSP Merrill Lynch, and SBI Capital Markets.
Hyderabad-based KFintech has been appointed as the registrar and share transfer agent. Mumbai-based Concept Communications has been selected as the advertising agency.
Will foreign investors be allowed to bid for the LIC IPO?
According to reports, the government is looking to allow foreign institutional investors to buy up to 20% in the LIC IPO. This help the mega IPO to sail through as FIIs are a major driver of India’s stock markets.
Is it all smooth sailing for the LIC IPO?
While the government would certainly like to think so, the insurer’s employee unions might be having different ideas.
The All India LIC Employees’ Federation has said that the proposed share sale could result in job losses and adversely affect the company’s infrastructure spending plans.
Rajesh Kumar, the general secretary of the employee’s union, said in an interview to Bloomberg TV that the listing could take away from LIC’s focus on investing in the country’s rural and economically backward people, who need insurance the most. Kumar said that a public listing could force the company, which has been investing into capital intensive infrastructure projects like roads, railways and power for the last 60 years, to look to pump its money into projects that would help it generate and maximise profits. Kumar said his union had written to Prime Minister Modi, protesting the stake sale.
How many employees does this union represent?
Kumar’s union represents only about 4,000 of LIC’s 114,000 employees. But a note of protest by one union could set off a chain reaction, and other employee interest groups could join in.
Can this opposition scuttle the LIC IPO plans?
It is unlikely that the government will go back on its plan to list LIC, but employees of several other government owned companies and banks have in the past protested vociferously when those entities have either been listed or been completely divested.
Apart from several banking unions, those representing employees of Coal India Ltd protested vehemently in 2010 when the company was getting listed. In fact, most employees did not participate in the IPO, a part of which was reserved for them, because of pressure from the unions, thus missing out on what was then a bumper IPO.
PLI scheme for textiles: which stocks can get rerated as govt clears the scheme?
The Indian government has approved the production-linked incentive (PLI) scheme for the textile sector for almost a dozen categories in a move that would boost domestic manufacturing and help local producers with an enhanced incentive structure.
The PLI scheme for textiles is part of the announcement made earlier during the Union Budget 2021-22, with an outlay of Rs 1.97 lakh crore.
What is the PLI scheme all about?
The PLI scheme for textiles seeks to promote production of high-value man-made fibre (MMF) fabric, garments and technical textiles in country. The incentive structure has been formulated to help the industry to invest in fresh capacities in these segments.
It would capture investments under two categories — one dealing with companies willing to invest minimum Rs. 300 crore in plant, machinery, equipment, and civil works (excluding land and administrative building cost) to produce items under the notified lines (MMF fabrics, garment and technical textiles).
In the second part, any company willing to invest minimum Rs. 100 crore shall be eligible to apply for participation.
The government expects that, over a period of five years, the PLI scheme for textiles will lead to fresh investment of over Rs 19,000 crore and result in cumulative turnover of over Rs. 3 lakh crore.
Which textile stocks to punt on?
The move, which was anticipated, fired up textile stocks on Thursday but analysts believe the counters can keep buzzing for a while.
Sumeet Bagadia of Choice Broking said that one can buy Arvind Ltd at the current market price for target up to Rs. 110 to Rs. 115, maintaining stop loss at Rs. 90 a share. “Similarly, one can buy Raymond shares at current market price for short-term target of Rs 480 to Rs 500 maintaining a stop loss at Rs 410,” he added.
Mudit Goel of SMC Global Securities said: “One can initiate momentum buy in Grasim shares for the short-term target of Rs 1,640, maintaining stop loss at Rs 1,550.”
Gaurav Garg of CapitalVia Global also favoured Raymond and added that one can also look at KPR Mill.
Raymond has been able to generate good cash flow from operations last year, and with the PLI scheme the stock is expected to perform well.
KPR Mill, which has been able to maintain consistent revenue as well as operating profit margin growth, is another counter to see action.
Rajiv Kapoor of Trustline also picked Arvind, Raymond, Grasim, Welspun and KPR Mill. He added that Bombay Dyeing, Bombay Rayon Fashions, Nitin Spinners and Gokaldas Exports are among the other likely beneficiaries.
Manyavar owner Vedant Fashions to launch IPO. Check details here
Kolkata-based ethnic wear company Vedant Fashions Pvt Ltd, the owner of the Manyavar brand, has filed its draft red herring prospectus (DRHP) with capital markets regulator SEBI to launch an initial public offering (IPO).
According to the DRHP, the issue comprises only an offer for sale by existing shareholders. The Ravi Modi Family Trust, controlled by the promoter Ravi Modi, is selling 1.8 crore shares while private equity investor Kedaara Capital Alternative Investment Fund and its affiliate Rhine Holdings Ltd are also selling 1.8 crore shares. The Ravi Modi Family Trust owns a 74.67% stake in the company while Kedaara holds about 7.5%.
The apparel company, which also owns other popular brands such as Mohey, Mebaz and Manthan, isn’t issuing any new shares and so won’t raise any capital for its own requirements.
Vedant’s Manyavar brand is a segment leader in the branded Indian wedding wear market. The company expects that the IPO and the public market listing will further enhance its brand image.
IIFL Securities, Axis Capital, Edelweiss Financial Services, ICICI Securities, and Kotak Mahindra Capital are the merchant banks arranging the issue.
Vedant Fashions’ business and financials
According to a CRISIL report, Vedant is the largest company in India in the men’s Indian wedding and celebration wear segment in terms of revenue, operating profit before depreciation, interest and tax, and profit after tax for the financial year 2019-20.
As of 30 June 2021, the company had a retail footprint of 1.1 million sq. ft covering 525 exclusive brand outlets (EBOs), including 55 shop-in-shops, across 207 cities and towns in India. It also had 12 EBOs across the US, Canada, and the UAE. The company aims to double its national footprint over the next few years.
The company operates an asset-light model in respect of its plant, property and equipment. This enables it to achieve a high return on capital employed, with a substantial majority of its sales being generated through its franchisee-owned EBOs. As a result, it doesn’t need to invest in developing manufacturing facilities or a distribution system.
The franchise-owned EBOs accounted for 90-92% of its sales in 2020-21 and the two previous years. Multi-brand outlets, large format stores and online platforms, including its website and mobile app, accounted for the remaining revenue.
For 2020-21, the company’s revenue from operations fell to Rs 564.82 crore from Rs. 915.55 crore the year before. Net profit dropped to Rs 132.9 crore from Rs 236.63 crore. This is not surprising, though, considering that the company—like all other retailers—had to close its stores for several weeks due to Covid-19 lockdowns.
Nifty PE ratio below 5-year average, but PB ratio nearing 5-year highs
As Indian stock market participants debate on whether it is over-valued or not, there are some indicators we may look at or better understanding. Nifty price-to-earnings (PE) ratio is one such indicator even though there are multiple actors to be considered while calculating the market valuation.
The Nifty price-to-earnings (PE) ratio today stands at 26.59 multiples even as the Nifty 50 share index is trading near its all-time high of 17,379.65, which it reached last week. Many market commentators
believe that the Nifty 50 index is over valued at 17500 levels and a crash is impending.
In terms of fundamental reasons, Indian stocks markets have been on a stellar track helped by ample global liquidity, easing lockdown regulations on the back of accelerated vaccination drive and improved
domestic economic growth. Weak US jobs data also seemed to have raised hopes that US government will continue with its liberal policy and economic support.
Nifty PE ratio is still below 5-year average
Nifty PE ratio at 26.59 is way lower than the 5-year high of 42 multiples and slightly lower than the 5-year average of 27.44. The Nifty PE ratio is also lower than the 1-year average of 33.55 and 2-year average of 29.88. Nifty PE ratio is a key indicator to read while understanding the valuation of Indian stock market. PE is short for the ratio of a company's share price to its per-share earnings. To calculate the P/E, you simply take the current stock price of a company and divide by its earnings per share (EPS). P/E Ratio = Market
Value per Share/Earnings per Share (EPS).
Nifty PE ratio moved between a high of 42 and low of 25.21 during the past one year. While on a 5-year basis, Nifty 50 PE ratio moved between a high of 42 and low of 17.15, data from Trendlyne showed.
Does Nifty 50 PE ratio indicate just valuation?
Many market watchers use the Nifty PE ratio to decide on whether the market is overvalued, cheaper or just right. In that sense we have seen a high Nifty PE ratio of 42 in February 2021 when the index reached 15000 levels for the first time. Since then, Indian companies have seen good growth on earnings and we see the Nifty PE ratio more reasonable around 26 multiples. There is also a methodology change in
the calculation. Now Nifty PE ratio is calculated based on consolidated earnings of companies from standalone EPS earlier.
At this stage the market watchers are divided on whether Nifty PE ratio indicates just valuation. Many believe, accelerated economic recovery and ample global liquidity will help both markets and
companies to see positive upside. The other camp believes that from now onwards there will be moderate returns from Indian markets and in case of any global risk off event liquidity will dry up.
Investors should not consider Nifty PE ratio as the only indicator to calculate market valuation but rather look at multiple factors and ratios while deciding on Nifty 50 valuation.
Many old timers quote historical chart and say that Nifty is in the oversold zone when Nifty PE ratio is below 14, while it is overvalued when PE ratio crosses 22. However in the last 17 months the markets have rallied in a different circumstance and a higher sustained PE remained acceptable on hopes of economic recovery and company earnings besides healthy capital inflows.
Nifty PB ratio is still near 5-year high
Another indicator Nifty price-to-book (PB) ratio at 4.39 however near all-time high of 4.48. In the last 5 years it moved between a range of 2.17 and 4.48. The Nifty price to book or Nifty PB value measures the
enterprise value of the company. Many consider Nifty PB value to be more stable than Nifty PE ratio when the market is volatile. Higher PB ratio also indicates that one is paying more in case the value goes
down. From a historical perspective Nifty is seen to be in the oversold zone when Nifty PB is below 2.5 and overvalued range when PB ratio is over 4.
Check out the 10 large caps where FIIs increased stake the most
Indian stock indices, which have scaled new highs and are now consolidating near their peak levels, have seen a rush of money towards large cap counters as investors—anticipating a correction from these levels—are looking at some comfort factor rather than high-beta mid- and small-cap stocks.
Foreign portfolio investors (FPIs) and foreign institutional investors (FIIs) have become more cautious about investing in India but looking at their behaviour it seems they have been bullish about large caps for the last few months.
Quarterly shareholding data shows they pushed up their holding in as many as 83 listed companies that have a valuation of $1 billion or more.
In particular, they have been bullish on the software services segment, besides pharmaceuticals, private banks, power utility, oil, fast-moving consumer goods, steel and engineering.
Top large cap favourites among FIIs
FIIs picked up additional stakes in India’s second- and third-largest software services exporters—Infosys and Wipro. These two stocks have already outperformed bigger peer Tata Consultancy Services over the past year, thanks at least partly to the FIIs’ bullish stance on these stocks.
Offshore investors also bought an additional stake in Axis Bank, the third-largest private-sector lender in the country; drugmaker Divi’s Labs; engineering giant Larsen & Toubro; Aditya Vikram Birla group flagship Grasim; FMCG firm Dabur and Tata Steel.
Two state-owned firms also found favour, with power generation company NTPC and the country’s top oil marketer Indian Oil also seeing buying from FIIs during the quarter ended June 30.
Billion-dollar stocks where FIIs made a bet
Meanwhile, FIIs picked up an additional stake of 2% or more in more than a dozen companies last quarter.
Technology firm Coforge, which was previously known as NIIT Technologies and went through a rebranding exercise last year, reported the most bullish stance by offshore institutional buyers. They purchased a 4.8% additional stake in the company last quarter.
In particular, FIIs were among the buyers in the banking, financial services and insurance space with three out of the top ten stocks where they bought 2.5% or more additional stake falling in the sector. These include SBI Cards, IDFC First Bank and Max Financial, which houses Max Life Insurance.
The offshore buyers were also attracted to the commodity space, bulking up their holding in Tata Steel, chemical manufacturer Aarti Industries and Graphite India.
Engineering was another theme for FIIs last quarter as they bought in Voltas, a Tata group firm that has engineering as well as a consumer durable business, and state-run Bharat Electronics.
Ami Organics jumps 48% on listing after strong IPO demand
Speciality chemicals maker Ami Organics made a spectacular stock market debut on Tuesday as its shares listed at a 48% premium to its initial public offering (IPO) price.
The Surat-based company’s shares listed on the BSE at Rs 902 apiece, up from the issue price of Rs 610. The shares touched a high of Rs 929 apiece before paring the gains on profit-taking to trade around Rs 894 around 10:30 AM.
The company now commands a market valuation of around Rs 3,275 crore.
The BSE’s 30-stock benchmark was up 0.4% in morning trade.
Ami Organics’ strong debut comes after its IPO received high demand. The company’s IPO was covered 64.5 times at close on September 3.
High-net-worth investors (HNIs) piled up big time while corporate investors and qualified institutional buyers (QIBs) also applied for several times the number of shares reserved for them.
Non-institutional investors, a segment that essentially captures demand from HNIs and corporates, bid for more than 154 times the number of shares reserved for them, with HNIs leading the show. QIBs applied for more than 86 times the shares allocated for them.
Retail investors were less wide-eyed but they also pitched in in enough numbers. The retail book was covered over 13 times.
The public issue size was Rs 566 crore, including Rs 171 crore that came in via anchor allotment. The company raised Rs 200 crore through a fresh issue of shares. It plans to use the net proceeds from the fresh issue to repay its debt and to meet working capital requirements. The rest of the money went to 20 selling shareholders including Kiranben Girishbhai Chovatia and Parul Chetankumar Vaghasia.
Ami Organics joins speciality chemicals maker Laxmi Organic and Anupam Rasayan to float an IPO this year. The company makes specialty chemicals that are used to develop advanced pharmaceutical intermediates.
The company posted consolidated revenue from operations of Rs 340.6 crore for the year through March 2021, up 42% from around Rs 239 crore for each of the previous two years. Net profit jumped to Rs 53 crore in 2020-21 from Rs 29.5 crore in 2019-20 and 24.7 crore the year before.