IPO Watch: Bang Overseas, Wockhardt Hospitals, IRB Infrastructure

IPO Watch: Bang Overseas Wockhardt Hospitals IRB Infrastructure

Bang Overseas is raising money from the primary market to fund retail expansion. The company is coming out with an IPO of 35 lakh shares. Post-issue, the shareholding of the promoter and promoter group will reduce to 74.19%. The company will use the IPO proceeds to set up a manufacturing unit, as well as a warehousing and logistic facility. BUSINESS: Bang Overseas operates in two business segments - textile trading and garment manufacturing. It is also into fabric designing. The manufacturing processes are outsourced to low cost countries like Turkey, Portugal, Mauritius and Europe. It supplies fabric under the brand name 'Bodywaves' to Indian retailers and apparel manufacturers like Arvind, Pantaloon, Provogue and Mudra. In late '02, the company launched ready-to-wear men's garment under the brand 'Thomas Scott'. Two-and-a-half years ago, it set up its first manufacturing unit, while the second unit commenced commercial production in '06. The company is now aggressively expanding its retail reach and had set up 12 retail outlets by December '07. Nine of these are company-owned and three are franchisees. Going forward, it plans to open 88 retail outlets, half of which will be company-owned. It also plans to launch a women's wear brand 'Miss Scott'. Its products are also sold via 157 point of sales, including large format stores like Shopper's Stop, Pyramid and Globus. FINANCIALS: The company has seen 70% CAGR in revenues in the past four years. However, its net profit has grown more than 140% on a compounded basis. Peers like Bombay Rayon and Kewal Kiran have shown similar growth over the same period. A 10% PAT margin is in line with its peers. However, as the company increases its retail presence, sustaining high margins will be difficult. Bang Overseas generated over 20% revenue from exports in FY07, against 39% in FY06. This indicates that its retail presence is increasing. Currently, trading and garment manufacturing businesses contribute equally to Bang's profit margin. Going ahead, the contribution of the trading business is expected to fall to around 20% by FY09. The brand 'Thomas Scott' contributed 8% to the total turnover in FY06, against 15% in FY07. On an annualised basis for FY08, the company is expected to clock sales of Rs 145 crore. This will result in a net profit of Rs 14 crore. Thus, on a post-issue basis, the earnings per share will be Rs 10.5, almost double that of FY07. VALUATIONS: At the higher end of the price band, Bang Overseas is asking a P/E of 19 on post-issue equity dilution, based on H1 FY08 annualised earnings. The company cannot be compared with any of the listed players because of the small scale of its operations. Nonetheless, the business model is similar to that of Bombay Rayon and Celebrity Fashions, which are trading at similar P/Es. Bang Overseas intends to be present in the entire retail value chain to capture the margins at each sales point. Retail presence will be its main focus. It's imperative for Bang Overseas to maintain its high growth momentum as existing peers are also available at the same price. RISKS: Soaring real estate prices and thinning retail margins are a concern for existing big players. The fact that Bang Overseas plans to increase its retail presence can put its margins under pressure, as the scale of operations will increase.



IRB Infrastructure Developers, a Mumbai-based infrastructure developer and construction major, is coming out with its initial public offer (IPO) of 51 million shares of face value Rs 10 each. The issue represents around 15.4% of the post-issue paid-up equity capital of the company. The company is raising money for pre-payment and repayment of existing loans, investment in subsidiaries and meeting general corporate expenses. Over 70% of the issue proceeds will be utilised to prepay or repay the debts of the holding company (IRB) and its various subsidiaries. The company also proposes to invest Rs 90 crore in a special purpose vehicle (SPV) that is bidding for build-operate-transfer (BOT) projects on sections of National Highway 8 (NH8). Loan repayment is expected to substantially reduce the company's interest expenses and boost its FY09 net profit. At its current offer price, the stock looks expensive compared to its listed peers, though it offers good growth prospects in the long term. Given last week's market crash, retail investors can avoid the issue as they may get the stock cheaper in the secondary market. BUSINESS: IRB Infrastructure is the holding company of the group and its BOT projects and construction activities are conducted through subsidiaries and SPVs. Recently, the group restructured its SPVs to convert the joint ventures into 100% subsidiaries. The group has an extensive presence in the highways sector and is currently involved in 12 BOT projects in roads and highways. It is now diversifying into real estate development and is in the process of acquiring land in Pune to develop an integrated township. During the first five months of FY08, nearly 55% of the group's consolidated turnover was accounted for by Ideal Road Builders (IRBL). IRBL is involved in BOT projects and government-funded construction projects. Around 37% of the group's revenue was accounted for by Mhaiskar Infrastructure, which maintains and collects toll on the Mumbai-Pune Expressway and Mumbai-Pune NH4 on a BOT basis. GROWTH DRIVERS: As the revenues and profits from its existing BoT projects grow, the company continues to bid for new BOT projects in the highways sector. Out of the company's 12 BOT projects, 11 are in the 'operational' phase. Recently, it bagged the project to develop the 260-km-long Dahisar-Surat section of NH8. The project will start generating revenues from FY09 and will be the biggest project in IRB's portfolio. The IPO proceeds will nearly quadruple the company's net worth to Rs 1,400 crore and enable it to bid for more BOT projects without straining its balance sheet. The bulk of the proceeds will be utilised to reduce debt and interest burden. In the first five months of FY08, interest expenses accounted for 30% of IRB's consolidated revenues. Hence, pre-payment of debt will provide significant upside to the company's net profit next year. Another growth driver is IRB's planned diversification into the real estate sector. Currently, the company has 925 acres in Pune and it intends to acquire an additional 475 acres for its proposed township projects. FINANCIALS: Starting from a low base, the company is growing rapidly. In the first five months of FY08, IRB reported a net profit of Rs 36 crore, which was more than the corresponding figure for FY07. Its consolidated revenue, at Rs 285 crore, was around 88% of the FY07 corresponding figure. We expect the company to maintain its growth momentum for at least the next 2-3 years as it continues to bag new BOT projects. Growth will also be aided by the construction division, which had an order book of over Rs 2,300 crore as on October 31, '07. This is equivalent to around eight times the division's estimated revenues for FY08. VALUATIONS: At its upper price band, the issue is valued at around 70 times its FY08 estimated EPS, which is 70-100% higher than the P/E multiples of its peers such as Larsen & Toubro (L&T), Hindustan Construction (HCC) and Gammon India. Our estimates are based on the assumption that the company will maintain the growth momentum witnessed in the first five months of FY08.


Wockhardt Hospitals
Wockhardt Hospitals is a leading private healthcare services company with a focus on super-specialty treatments. It plans to raise Rs 688-762 crore. The IPO comprises a net issue of nearly 2.5 crore shares with a face value of Rs 10 each, representing 24% of the post-issue equity capital of the company. Around two-thirds of the issue proceeds will be used to construct and develop the company's greenfield and brownfield hospitals. The remaining amount has been earmarked for prepayment of short-term loans taken by the company to fund its capital expenditure. BUSINESS: Incorporated in August 1991, Wockhardt Hospitals (formerly known as First Hospitals and Heart Institute) has 15 hospitals (10 super-specialty and five regional specialty intensive care units) in western, southern and eastern India. According to CRIS-INFAC '07 report, the company has around 1,390 beds across its various hospitals. Apollo Hospitals is the industry leader in the private sector with 6,952 beds. Wockhardt Hospitals had an average occupancy rate of around 68% in the last fiscal year. During FY07, it performed over 10,000 cardiac procedures, 1,000 orthopedic procedures and 400 neuro and spine surgeries. As on December 31, '07, the company had recruited 471 doctors and 2,147 medical personnel across its 15 facilities. Being a reputed pedigree of Wockhardt group and focusing on specialty treatments are its strengths. It also enjoys strategic association with Harvard Medical International, a global non-profit organisation, for advancement of medical facilities around the world. GROWTH DRIVERS: The company plans to consolidate its position in the metros and establish its footprint in Tier-II cities. It plans to increase its number of beds to 1,957 by the end of FY09. The company plans to expand via the greenfield or brownfield routes. It also aims to tap the growing medical tourism market, with special focus on patients from developed countries seeking cost-effective healthcare. It's also banking on increased spend on healthcare in the country on the back of growing penetration of health insurance. FINANCIALS: The company's revenues posted a CAGR of 48% since '03 to reach Rs 236.5 crore in FY07. It started generating profits since FY05; its profit stood at Rs 15.3 crore at the end of FY07. The company has not paid any dividends in the past and is not likely to pay any in the foreseeable future, as it plans to plough back its earnings for development and expansion of its business. VALUATIONS: At the lower price band, the company is valued at 242 times its FY08 estimated earnings. At the upper price band, P/E works out to just less than 270. Our estimates are based on growth witnessed in the nine months ended December '07. These valuations look expensive compared to the average valuation in the healthcare segment. Apollo Hospitals, a dividend paying company, has a P/E of 28. Investors will be better off buying value stocks in this segment from the secondary, rather than primary market.

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Moneycontrol.com

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The Economic Times

Bang Overseas' 35 lakh share IPO opens
Tulsi Extrusions IPO to raise up to Rs 48.5 cr
Wockhart Hospitals to raise Rs 800 cr through IPO
Market fall puts brakes on IPO subscription
Shriram EPC to raise Rs 165 cr through IPO
Post-IPO IRB stocks may get cheaper in secondary market
Bang Overseas IPO looks fairly valued

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