CARE IPO(successful issue)

Analysis:
Brokerages are bullish on the initial public offering of Credit Analysis and Research (CARE) and are advising investors to 'subscribe' to the issue. The company is entering the capital market with it IPO on Friday to raise between Rs 504 and Rs 540 crore. The company is offering 71,99,700 equity shares of face value Rs 10 each in the price band of Rs 700-750 per share.

Outlook & Valuation:

The company is 3rd rating agency in India to go public for its business expansion after CRISIL Ltd and ICRA Ltd. CARE ratings is a 2nd largest rating company in India after CRISIL in terms of rating turnover. At the price band of Rs.700-750, the company is quoted at 19.9x and 21.4x on its 1HFY13 EPS of Rs.35.1. The listed rating business in India is traded at 33-35x. The valuation multiple of the Company is closer to peers valuation. We at Jainam Research recommend investors to SUBSCRIBE the CARE Ratings Ltd IPO considering its enhanced diversified products/services Portfolio, strong positioned for organic and inorganic growth, robust financial performance, Valuation multiple inline with peers and long term growth opportunity in the rating business on The back of higher demand of Debt from Private sectors and regulatory development of Bond Market in India.

VKS Projects Ltd.(failure issue)

Analysis of VKS Project:

The IPO price at the upper band is quite steep to the industry peers. Its high client concentration is also a cause of worry. Besides most of its revenues are tied up in form of receivables which is also a cause of concern. The exponential growth which it has witnessed does not seem sustainable. The IPO has received credit rating of 1 as per credit rating agency CRISIL indicating poor fundamentals. We have clearly advised our readers to avoid this IPO as there is a low revenue visibility since its order book is of lower value.

Outlook & Valuation:

VKS has a very high client concentration in terms of revenues. The top five clients contribute three-fourth of the total revenues, which we believe is a risk as the order books of the top capital goods companies have tumbled as per their March 2012 quarter numbers. Besides, if one looks at the IIP data, then the growth of the capital goods companies has remained negative in the second half of the last fiscal. As industrial growth declines, a direct impact would be felt on companies like VKS, and thus, we remain skeptical about its order book and the sustenance of its exponential growth. With regard to valuations, on the post diluted equity, the company is priced at the PE of 14x of its annualised estimated FY12 EPS (on the higher price band). This is very steep as compared to that of industry peers like Unity Infra at 3.5x and Pratibha Industries at around 5.5x. Hence, considering factors like a weak order book position that gives lower revenue visibility, the steep valuations and the large proportion of receivables, we recommend that investors avoid this IPO.