SEBI may weigh an alternative system for IPO pricing

MUMBAI: While the dismal performance of IPOs is largely attributed to a sluggish market, it is time to raise a more fundamental question: do we need a relook at the book-building system that’s used to price new stock offerings?

A review of the present book-building norms should figure in Sebi’s agenda on the next round of primary market reforms. According to a source familiar with the subject, Sebi may soon examine whether the book-building process is the most efficient price-discovery mechanism.

“In fixed price issues, the promoter fixes a single price. In the book-building issues too, he sets the issue price, though within a 20% band. So in the true sense, the market is not discovering the price,” said Prime Database MD Prithvi Haldea.

A predominant number of book-build IPOs gets subscribed (often in multiples) at the upper price band. It’s a reflection that almost all IPOs are underpriced, and rarely rightly priced. Stock market circles who favour a change in the rules argue that a real price discovery is possible only when there is no price indication from the issuer, and the price is freely determined through an auction. In such a system, one can have a circuit filter on the day of listing, as the real price discovery has already happened through the auction process.


But the challenge in any new system would be taking care of the interest of retail investors. To ensure this, the QIB portion of 50% in an IPO could be sold through a closed book auction. “The auction should remain open for a day. An auction shall help the issuer get the best price for the shares from QIBs. And then, the lowest QIB bid should be the fixed price for retail investors,” added Mr Haldea.

The logic is since QIBs are sophisticated investors with a better understanding of valuations, they don’t need an indicative price range for an IPO. Some of the investment bankers also think that retail investors (who don’t really help in the price discovery system) should be brought in at a later stage.

According to Kotak Mahindra Capital senior V-P Gesu Kaushal, “Over the last few years, many companies have successfully done IPOs through the book-building mechanism. We could consider having an indicative price band as a variation to the current book-building process given the volatile market conditions.

And over the longer term, as the market matures further, we could consider the French auction process for QIBs with a common clearing price for retail investors.” “Modifications are required on these counts. Also, in the extant process, the need of the hour is to reduce the time between deciding the price band and opening the issue for subscription,” said another senior i-banker.

Mr Haldea felt there was also a problem when several QIBs did not get shares in an IPO despite their willingness to pay a higher price. “Even if a QIB sees a higher value in an IPO, it still has to bid within the price band and be subjected to a uniform proportionate allotment,” he said.
thanks to :-/economictimes.indiatimes.com/

Resurgere Mines and Minerals IPO subscribed 1.15 times

MUMBAI: The initial public offering of Resurgere Mines & Minerals India on Wednesday got subscribed 1.15 times on the last day of the offer, as per the NSE website. The price band of the issue has been fixed between Rs 263 to Rs 272, and it closes on August 13.

The issue, through which the company is planning to raise about Rs 121.04 crore, received 51,25,020 bids, around 3,94,380 bids were received at the cut-off price, against 44,50,000 shares on offer.

The qualified institutional buyer’s portion got subscribed 0.98 times, the non-institutional investors was subscribed 0.70 times of the shares on offer, retail investors portion received 0.02 times subscription and the employee portion got subscribed 0.10 times.

The company plans to utilise the issue proceeds for purchasing plant and machinery and purchase railway rakes to set up own logistics infrastructure facilities and funding working capital requirements.

Nirmal Bang puts 'buy' on SBTL

MUMBAI: Considering full capacity utilization and six fold expansion, SBTL is set to show robust top-line growth of 499 per cent and bottom-line growth of 478.3 per cent in FY09-10. EPS will grow from Rs 0.84 in FY08-09 to Rs.4.35 in FY09-10 on expanded capital, according to securities firm Nirmal Bang.

The brokerage has assigned a ‘buy’ rating on the stock with a target price of Rs.44 per share on FY 09-10 earnings estimates of Rs 4.35 (PE 10* Rs 4.35EPS) and Rs.78 on FY 2010-11E (PE 10*Rs 7.8 EPS) on expanded capital.

Global demand for petroleum is predicated to increase by 40% by 2025. Hence, the concerns about oil supply and energy security have motivated many countries to consider alternative fuels i.e. liquid biofuels, renewable fuels derived from Biomass.

SBTL is the only listed biodiesel company with first mover advantage meeting the standards specified by IS 15607. It ventured into biodiesel operations with a Semi Automatic Multi-feed biodiesel plant at Nalgonda with capacity of 40,000 liters per day.

The company is going with further Greenfield expansion of 250 TPD at Vizag (Andhra Pradesh) fully automatic multi-feed technology to produce biodiesel from variety of feedstocks. This will increase its capacity by 6 times.

India consumed approximately 47.80 MMT of diesel in FY 07-08. With National biofuels policy likely to be approved in FY 08-09 and minimum 2% mandatory blending of biodiesel, the demand is likely to reach 1 million ton. SBTL is fully prepared to take advantage of this opportunity.

SBTL has taken initiative to go for planting of Jatropha and Pongamia through farmers by entering into long-term seed purchase contracts and is also on the verge of entering into long term contracts for the plantation in waste lands.

In Jan'08 SBTL bagged order for supply of 300,000 liters of biodiesel every month to APSRTC across its twelve depots in Hyderabad and Secunderabad. The State owned APSRTC consumes 18 lakh liters of diesel every day to operate its fleet of 22000 buses.

M&M is launching their first Biofuels powered vehicles for commercial use by year-end. M&M is also confident of fitting the new engines to all its existing models and is in the advance stage for testing B-100 (Biodiesel).

Further, Indian Railways has also called for tenders to procure 140000 liters of biodiesel per day. SBTL has participated in the tender and stood at L1 status.

On Wednesday, SBTL shares closed at Rs 25.65, up 0.20 per cent from previous close.
thanks to :- economictimes.indiatimes.com

Hindalco to set rights at Rs 96 a share

MUMBAI: Hindalco Industries, India's top aluminium producer, aims to set its rights issue at Rs 96 a share and tweak the ratio to 3 shares for every seven held from 1:3, three bankers familiar with the deal said on Wednesday.

The month-long rights issue is set to open in September, said the bankers who declined to be identified because they were not authorised to speak to the media.

Company officials could not be immediately reached for comment.

Hindalco sent a notice to the stock exchange on Wednesday saying its board will meet on Aug. 14 to determine the price and other terms of the issue.

Hindalco shares closed at Rs 142.40 on Tuesday.

Dabur Pharma gains on Fresenius investment

MUMBAI: Shares of Dabur Pharma extended gains after German healthcare group Fresenius said its unit will invest 10-30 million euros over the next 2-3 years to double Dabur Pharma's API plant capacity.

At 1 pm, the Dabur Pharma share was up 2.73 per cent at Rs 64 with volume traded at 11,529 against two-week average of 11,950 shares.