Sunday, 19 June 2016

IPO Market Update

While several private equity-backed companies have sold shares to the public this year, several others that were expected to have deferred or abandoned their plans, denying exits to their private equity, or PE, investors.
Warburg Pincus-backed ACB (India) Ltd; TPG and Actis-backed AGS Transact Technologies Ltd; Tano Capital-backed logistics firm Shree Shubham Logistics Ltd; Catholic Syrian Bank Ltd; Blackstone-backed Nuziveedu Seeds Ltd; and CX Partners-backed Matrix Cellular (International) Services Ltd have failed to access the primary market for share sale even after obtaining clearances from stock market regulator Securities and Exchange Board of India (Sebi) as far back as six months in some cases.
This contrasts with the decent run some PE firms have had this year in terms of partial or complete exits through initial public offerings (IPOs) of portfolio companies. There have been about 10 IPOs this calendar year, which collectively raised Rs.6,743 crore, according to data from primary market tracker Prime Database. Several among these IPOs, such as those of CX Partners-backed Thyrocare Technologies Ltd, ICICI Venture and Gaja Capital-backed TeamLease Services Ltd and Sequoia Capital-backed Ujjivan Financial Services Ltd, witnessed frenzied subscription. The IPOs of Thyrocare, TeamLease and Ujjivan were subscribed 73, 66 and 40 times, respectively.
But others haven’t been as lucky.
According to Mint research, around seven PE-backed firms have failed to hit the public markets in the last year. These companies have either let their approvals from Sebi lapse or plan to do so, given low investor interest for their share sales. Sebi’s approval for an IPO is valid for 12 months.
Collectively, these firms had planned share sales worthRs.4,000 crore to fund future growth or provide an exit to their PE investors.
According to market experts, several factors such as sector-specific issues, high valuation expectations of promoters and PE investors, and poorer-than-expected financial performance have led to this.
“Several of these companies are those where there is a PE investor and the valuations that they are seeking are not acceptable to the market. PE investors would obviously not like to sell for a loss when they have been invested for five or seven years; they would like to sell at a reasonable profit,” said Prithvi Haldea, chairman of Prime Database group. They’d much rather defer the IPO than book a loss, he added.
In November, Mint reported that Matrix Cellular was facing pressure from its investors on the valuation it was seeking for its public market outing. The company’s financial performance was below the commitments made to investors.
“We believe that with the introduction of refund of VAT (value-added tax), the company is geared to perform much better and since we had enough internal accruals, we decided to hold the IPO process currently,” a Matrix spokesperson said in an e-mailed response.
The desire of PE investors to optimize the valuation clashes with that of savvy public market investors looking for an upside when a stock lists. “If you are going to price an IPO at nearly full valuation and leave barely nothing on the table for the investors, then clearly that’s a no-no,” said Sonal Shah, executive director at SMC Capitals Ltd.
According to a 17 May Mint analysis , the median return of investors who sold IPO shares on listing in 2016 is down to 5.26% from a median return of 79.55% in 1999, indicating aggressive IPO pricing.
Finally, investors have low or no appetite for certain sectors, especially those that are capital-intensive.
“Some companies that have not managed to launch their IPOs are from sectors that are right now not in demand from investors. Sectors such as infrastructure and power are not the themes that investors are keen on, so the investor response for such companies will be lukewarm,” said Haldea of Prime Database.
In November, Mint reported that Warburg Pincus-backed coal washing firm ACB (India) was unlikely to go ahead with its third attempt to sell shares in the last five years, given the lack of investor interest in the infrastructure and power sector.
According to Munish Aggarwal, director at investment bank Equirus Capital Pvt. Ltd, most IPOs that have worked well in recent times are of companies from relatively newer sectors which are under-represented in listed markets, have low regulatory risk and are not completely dependant on broader industrial growth.
“Investor appetite is strong but only for fundamentally good companies where the underlying story is good,” he said.
In 2015, 21 companies managed to raise Rs.13,614 crore from the primary market, data from Prime Database shows.
The resurgence in IPO market came after a lull of two years, which saw just eight companies raise close to Rs.2,485 crore in 2013 and 2014. PE investors were banking on the buoyancy in the primary market to help them exit some of their mature investments.
Still, the selective nature of investors, especially when it comes to IPOs, may mean that the road to listing will not be a smooth one for many companies.
“As far as IPO market is concerned the selective trend is likely to continue. Sectors which are under stress or are not seen as those where India has a competitive advantage or are not consumption-led will definitely see low interest,” said Shah of SMC Capitals, adding that companies in profitable niches will have no such problem.

Sandip Ginodia , Director 

We deal in over 60 unlisted companies with 15 years of experience .
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Saturday, 11 June 2016

Update on IPO

The primary market is slowly becoming more discerning about who it lets in, with investors not hesitating to turn their backs on companies they think don’t make the cut.
Since 2011-12, of the 132 IPO applications approved by the Securities and Exchange Board of India (SEBI), 67 lapsed. In the three months from April to June this year, of the 13 companies that SEBI cleared to launch their IPOs, seven didn’t come to the market.
This is much higher than in the whole of FY15, when four out of 16 IPOs failed to make it.
A merchant banker, who did not wish to be quoted, said there is more “investor pushback now because they disagree about a company’s valuations or business fundamentals”.
In some cases, the company fails to enthuse institutional investors during the roadshows and publicity programmes to attract investors. If institutions don’t show adequate interest, the IPO is mothballed before retail investors even hear about it.
In other cases, the timing has gone wrong or the market environment may have changed since receiving SEBI’s clearance. For instance, the Catholic Syrian Bank public offer was delayed as the market’s appetite for banks declined and asset quality concerns surfaced. (The bank’s IPO clearance will lapse on June 22.)
More companies may be turned away now as investors are biased towards large IPOs. “When a company is seen to be raising a lot more money,” another banker said, “it gives the impression of being more liquid, less volatile. So now, if there is a ₹300-crore IPO by a company in the infrastructure space, there aren’t going to be many takers for it.”
Public offer process
When a company wants to make a public offer for its shares, it hires a merchant banker to draft an offer document — which lays out details about the company, its business and the share offer. This document, called a draft red herring prospectus, is submitted to SEBI. The capital market regulator gives the IPO the green signal after it examines the document and is convinced that the offer is genuine. This clearance is valid for 12 months, within which time the company must complete the entire offer process.
Most companies try to complete the process within three to six months of getting the go-ahead.
For example, SEBI clearances for four companies issued in April-June 2015 — AGS Transact Technologies, SMC Global Securities, Shree Shubham Logistics Ltd and Amar Ujala Publications — have expired. Together, they would have raised about ₹1,800 crore in fresh equity. Catholic Syrian Bank’s public offer period ends in a fortnight; it had planned to raise ₹400 crore. Two other companies — SSIPL Retail Ltd and Dilip Buildcon — have since filed revised documents with SEBI after their first clearances lapsed.
(The companies named here and their merchant bankers either did not respond to emailed questions or declined to go on record about their IPO plans.)
On the bright side, in FY16, 22 companies raised a total of ₹16,565 crore through IPOs, the highest in the past five years, according to data with Prime Database.
The ones left behind are naturally filtered out by investors, the first banker said. “They might choose to come back when the timing is better.”

Tata Technologies revives IPO plan, likely to raise Rs 1,400 crore

MUMBAI: The Tata Group has revived plans to list Tata Technologies, an engineering solutions and IT product developing arm of Tata Motors, on the local bourses. The company is planning to raise Rs 1,400 crore through an initial public offering (IPO), said two people with direct knowledge of the plan. The proposed share sale will be the first IPO from the Tata Group in 12 years after TCS in July 2004. 

An email query sent to the company and Tata Motors did not elicit any response till the time of going to press. 

Tata Motors holds 70.43 per cent stake in Tata Technologies, while Alpha TC, a wholly-owned subsidiary of the partnership sponsored by Mizuho Securities and other international investors, owns 8.71 per cent in the company. 

Other investors in the company include Tata Capital, Barclays Wealth Corporate Services, Sheba Properties, Tata Entertainment Overseas and Walbrook Nominees, which own between 1 per cent and 5 per cent each. 

Tata Technologies was planning an IPO in 2008 to fund expansion and repay some of its debts, but the plan was dropped due to the global market meltdown. 

For the financial year ended March 31, the company reported revenue of Rs 2,686.20 crore, up 3.6 per cent over the previous year. The company's net profit for the year was Rs 382 crore, up 14.25 per cent from last year. TATA Technologies which started as a design company in 1994 for Tata Motors' automotive business, now earns one-third of its revenue from North America, Europe and the Asia-Pacific re gion. Nearly 65 per cent of its business comes from the automotive sector, 12 per cent from aerospace and the rest from industrial machinery and other businesses. 

Sandip Ginodia , Director 
We deal in over 60 unlisted companies with 15 years of experience .
For latest prices visit : / call : 09830271248 .
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Source : Economic Times

Himadri Cement Financial Snapshot

TMB snapshots and news clippings

Tamilnad Mercantile Bank Ltd (TMB) 

Net Profit growth of 6% to Rs.402.16 Cr  from Rs.379.40 Cr (Last year). 

Book value also has risen from Rs.91,203/ per sh (last year)  to Rs.1,03,000/ per share as on 31.3.16. 

2nd interim dividend of Rs 40 paise per share(after bonus).

For Tamilnad Mercantile Bank (TMB), growth will be driven by micro/small enterprises, retail and trader segments and mid-corporates in a limited way, said HS Upendra Kamath, Managing Director and Chief Executive of the bank.
In 2015-16, the bank recorded a net profit growth of 6 per cent to ₹402.16 crore from ₹379.40 crore in the previous fiscal (FY15).
Total business rose 17.70 per cent to ₹52,946.59 crore (₹44,985.91 crore in FY15). The bank has set a business target of ₹60,000 crore for the current fiscal.
The new board, which assumed charge in March this year, has declared 500 bonus shares for every shareholder. “This would involve a transfer of about ₹120-130 crore from reserves to equity. Such bonus shares have already been issued to around 4,000 of the 18,000-odd shareholders,” Kamath said.
The book value of the share has risen from ₹91,203/share last year to ₹1.03 lakh this year. The net worth has risen to ₹2,948.54 crore from ₹2,594.31 crore a year ago. Deposits grew 18.40 per cent to ₹30,368.88 crore (₹25,649.86 crore) and advances by 16.77 per cent to ₹22,577.71 crore (₹19,335.95 crore). Net non-performing assets (NPAs) rose to ₹199.90 crore from ₹128.96 crore, up from 0.67 per cent to 0.89 per cent of total advances.
IPO plans

On the bank’s plans to float an initial public offering (IPO), Kamath said: “It is true that it has not become a reality. But this will not affect the bank, as it is adequately capitalised for the present and can take care of growth for the next two-three years.
“IPO, of course, is one way of raising capital, but there are other ways to raise resources as well. As of now, IPO does not seem to be on the anvil.”

Sandip Ginodia , Director 

We deal in over 60 unlisted companies with 15 years of experience .
For latest prices visit : / call : 09830271248 .

Wednesday, 8 June 2016

SEBI settles RBL Bank case, paves way for IPO

(formerly Ratnakar Bank) has settled securities market-related violation with the Securities and Exchange Board of India (Sebi) under the consent mechanism. The move paves the way for the initial public offering of the private-sector lender.

RBL Bank was in breach of ‘deemed public issue’ norms of the after it allotted 1.8 million shares to 4,892 investors. The lender had filed an application beforein November 2015 to settle the violation under the consent route.

Under this, an alleged wrongdoer can settle the matter with Sebi by paying a monetary penalty and fulfilling any further condition laid out.

RBL Bank paid Rs 47.6 lakh as the part of the consent terms to Sebi. Further, it provided an exit opportunity to its investors. The settlement order was passed on May 30 with immediate effect.

It offered shareholders a price higher than the allotment price plus interest at the rate of 15 per cent and the fair value estimated by the lender, which is Rs 90. The lender has given shareholders 21 days to decide either to sell at the conditional price or to stay invested in. However, RBL informed Sebi it has not received any response from shareholders.

Sandip Ginodia , Director 
We deal in over 60 unlisted companies with 15 years of experience .
For latest prices visit : / call : 09830271248 .
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Taxes on Unlisted Shares

The Central Board of Direct Taxes ("CBDT") with the objective to reduce litigation and to maintain consistency in approach on the issue of treatment of income derived from transfer of shares and securities, has issued circular no. 6/2016 dated February 29, 2016 ("Circular"), and a follow up letter no. F.No.225/12/2016/ITA.II dated May 2, 2016, ("the CBDT Letter").

Taxability of surplus generated from sale of listed shares or other securities

A majority of transactions in shares and securities take place in respect of listed shares and securities. Therefore, CBDT has instructed the Assessing Officers, vide its Circular, to consider the following principles for determination whether the surplus generated from sale of listed shares or other securities would be treated as capital gain or business income:
  1. If the taxpayer himself opts to treat the listed shares or other securities as stock-in-trade, then irrespective of the period of holding of these listed shares and securities, the income arising from transfer of such shares/securities would be treated as its business income.
  2. In respect of listed shares and securities held for a period of more than 12 months immediately preceding the date of its transfer, if the taxpayer desires to treat the income arising from the transfer thereof as capital gain, the same shall not be put to dispute by the Assessing Officer. However, once this stand is taken by the taxpayer in a particular assessment year, then the taxpayer will be bound by the same stand in the subsequent assessment years also and the taxpayers will not be allowed to adopt a different/contrary stand in the subsequent years.
  3. In all other cases, the nature of transaction (i.e. whether the same is in the nature of capital gain or business income) shall continue to be decided keeping in view the earlier circulars issued by the CBDT (Instruction No. 1827, dated August 31, 1989 and Circular No.4 of 2007 dated June 15, 2007).
The Circular further clarified that the above principles for categorization will not apply for those transactions, where there is a question on the genuineness of the transaction, such as bogus claims of long term capital gain/short term capital loss or any other sham transactions.

Taxability of income arising from transfer of unlisted shares

The CBDT Letter further brings clarity towards assessment pertaining to income arising from transfer of unlisted shares and provide that income arising from transfer of unlisted shares would be considered under the head 'Capital Gain', irrespective of the period of holding to minimise disputes.
The above assumption would however not apply to situations where:
  1. the genuineness of the sale of unlisted shares is questionable; or
  2. the transfer is related to an issue pertaining to lifting of corporate veil; or
  3. the transfer of unlisted shares is made along with the control and management of underlying business.
The Assessing Officer in the aforesaid cases will take a view depending on the facts and circumstances of each case.

Period of holding for transfer of unlisted shares

Interestingly, the Lok Sabha has passed the Finance Bill, 2016 in the current budget session, whereby a third proviso has been inserted in Section 2 (42A) which deals with Short Term Capital Assets. In accordance with the amendment, for the purposes of transfer of unlisted shares to be considered as a short-term capital asset, the period of holding of unlisted shares has been reduced to 24 months (from the current 36 months period)with effect from April 1, 2017. This Finance Bill is yet to be passed by the Rajya Sabha.


The characterisation of income arising from transfer of listed and unlisted shares is a welcome step. The clarification may bring uniformity in treatment and hopefully, reduce tax disputes and litigation. Even though certain discretion has been granted to the Assessing Officers in certain situations (which may leave room for confusion and potential disputes), it is expected that in majority of security sale purchase transactions, the assessment of applicable tax would be simpler and non-contentious.