Gammon Infrastructure Projects - IPO Subscribe recommendation from Geojit

	Report Date						March 7, 2008.
	Company Name						Gammon Infrastructure Projects
	Price Band / Recommendation						Rs.167-200	Subscribe
Sector			Infrastructure			Investment Rationale Ø GIPL, a subsidiary of construction major Gammon India , is an infrastructure project development company with diversified project portfolio spread across roads, bridges, ports, biomass power sectors. Ø In addition to maintaining stronghold on above, GIPL is entering mass rapid transit systems, water management projects, airports, power transmission lines, SEZs and hydroelectric power projects. Ø Its product portfolio includes 14 projects, of which 4 are already in operations, 7 are in development phase and 3 are in pre-development phase. Ø Well balanced risk-return profile with mix of market-based & assured return annuity projects. As an early entrant, GIPL enjoys ROE of 24-25% on old projects with confirmed investment of Rs.5500 crore, and will derive ROE of atleast 20% on new ones. Ø Is a preferred bidder for port and hydropower project with additional investment of Rs.3000 crore. Ø Long experience, strong position in construction industry & proven engineering capabilities of Gammon Group coupled with GIPL’s experience in successful development and timely implementation of projects, provides it with competitive advantage. Ø Well placed to take advantage of huge opportunities emerging in infrastructure sector. Investment Concerns Ø Infrastructure projects require huge upfront capex and interest rate sensitivity is high. There is possibility of further equity dilution to finance new projects. Ø There are a number of implementation risks. Recommendation Ø Prima facie, the P/E is misleading as this is a long term growth story. We recommend to SUBSCRBE the issue with a long term perspective.
BSE Sensex			16542
Issue Details
Issue Size			1,65,50, 000 Equity Shares
Shares offered to Public			1,48,95,000 Equity Shares
Shares reserved for Retail Investors			44,68,500 Equity Shares
Face Value			Rs 10/-
Funds to be raised			Rs. 276.4 – Rs. 331 crore.
Issue opens on			March 10 2008
Issue closes on			March 13 2008
Utilisation of Issue Proceeds
Particulars				Rs. Crore
Investment for Kosi Bridge				24.15
Investment for Gorakhpur bypass				36.89
Investment for Rangit II Hydro electric project				89.60
Investment for Mumbai Nashik Road Project				51.00
Repayment of loan to GIL				10.00
Investments in above mentioned projects will be done thru SPV
Shareholding Pattern (%)
		Pre Issue			Post Issue
Gammon Group		86.00%			76.15%
Others		14.00%			12.40%
Public					11.45%
Eq. Capital (Rs. Cr.)		128.00			144.55

Historical Financial Information

	FY 2006	% Inc.	FY 2007	Sept. 30,2007
Year ended March	15 mnths		12 mths	6 months
Net Sales	76.78	140.5%	147.70	77.72
EBITDA	59.88	170.1%	129.40	64.68
EBITDA (%)	78.0%		87.6%	83.2%
Interest Expenses / (Income)	23.13	143.0%	44.95	25.54
Depreciation	19.31	162.0%	40.49	20.95
P.B.T.	17.44	215.1%	43.96	18.19
Consolidated PAT	18.27	104.3%	29.85	10.96
Year end Equity Capital (Rs 10/-)	128.00		128.00	128.00
Consolidated EPS (Rs)	1.43	104.3%	2.33	0.86
Fully Diluted Equity Capital (Rs 10/-)	144.55		144.55	144.55
Diluted Consolidated EPS (Rs 10/-)	1.26		2.07	0.76
Book Value (Rs)	19.68		21.96
RONW (%)	5.8%		10.6%
ROCE (%)	7.5%		15.7%
Diluted P/E (x) on Lower Price Band	132.16		80.86
Diluted P/E (x) on Higher Price Band	158.28		96.84

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About Gammon Infrastructure Projects (GIPL) Ø GIPL, an infrastructure project development company, is a subsidiary of construction major Gammon India . It undertakes and develops projects such as roads, bridges, ports, biomass power projects on Public –private partnership (PPP) basis. Successful infrastructure development is dependent upon two major expertise: (i) project development, which includes appraisal, bidding, financing and project Management (ii) engineering, procurement and construction. Ø Currently, GIPL’s infrastructure project development business includes 14 projects, of which 4 are already in the operations phase, seven are in the development phase and 3 are in the pre-development phase. GIPL also provides O&M (Operation & Maintenance) and project advisory services for projects which are undertaken by project specific companies.

Investment Rationale Ø The construction spending boom in India has been driven by massive infrastructure spending. Government’s policy to supplement its resources thru PPP projects and an immediate need for developing infrastructure in India will result in several large infrastructure projects across India . Ø GIPL is among the first companies in India incorporated exclusively to participate in infrastructure development through PPP model. As an early entrant, company has significant experience in successful development and timely implementation of projects, which provides it with competitive advantage over new entrants as company is well positioned to deal with any construction or implementation risk in the industry. Moreover, company also has flexibility to grow and allocate resources to sectors that offer more attractive margins. Ø Company’s projects (both in operational and development phase) are spread across roads, bridges, ports, biomass power sectors. Further, these projects are geographically dispersed across various states in India . Thus, sectoral and geographic diversity enables GIPL to effectively mitigate the risks associated with any particular sector and any particular State in India . Ø In addition to maintaining stronghold in sectors like roads, ports and energy, GIPL is analyzing a number of new potential projects in the infrastructure sector, including mass rapid transit systems (“MRTS”), water management projects, airports, power transmission lines, SEZs and hydroelectric power projects. Ø GIPL balances its risk-return profile with a mix of market-based projects/toll (where market risk is carried by company) and assured return projects/annuity (where the market risk is carried by the project client) and a combination of annuity as well as toll project. Consequently, company enjoys significant upside potential with market-based projects and is guaranteed stable revenues from assured-return projects. Presently, annuity based projects account for 70% of the revenue. GIPL, by virtue of its early mover advantage, enjoys ROE (return on equity) of 24-25% on old projects with confirmed investment of Rs.5500 crore, while on new projects, it will derive ROE of atleast 20%. GIPL is practically debt free company despite 4 projects operational. Ø Is a preferred bidder for port project in Gujarat and hydropower project in HP with additional investment of Rs.3000 crore. Ø GIPL has a competitive edge as a result of long experience, well entrenched position in the construction industry and proven engineering capabilities of the Gammon Group. For infrastructure development projects, while GIPL has expertise in project management and execution, it derives significant synergies from the Gammon Group, which is one of the leading EPC contractors in India . Company’s strategic relationships with global infrastructure companies such as Dragados S. P. L., China Light & Power, Alstom, Siemens and Noble Group enables it to enhance its project bidding and development opportunities.

Investment Concerns Ø Infrastructure projects (BOT) require huge upfront capex and cash flows are back-ended. BOT projects are typically leveraged as well. Thus, interest rate sensitivity is high in such BOT projects, especially as longer-tenor loans are not easily available in India . There is also a possibility of further equity dilution to finance new projects. Ø Given long term nature of projects, there are a number of implementation risks. Other risks for BOT projects such as traffic volume risks, local or political interference risks and delays in land acquisition, impacting timely execution and thus projected IRRs. However, GIPL has history of successful development and timely implementation of projects.

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Recommendation Ø Prima facie, the P/E is misleading as this is a long term growth story. We recommend to SUBSCRBE the issue with a long term perspective.

Disclosures Ø The author may have held / hold the above-mentioned securities in their personal accounts or on behalf of the clients. The information contained has been obtained from sources believed to be reliable. While taking utmost care in making the report, the authors or the company does not take responsibility for the consequences of the report. All investment, information and opinion are subject to change without notice. The investment recommendations may not be suitable to all the investors. March 7, 2008

Mkts could see a sustained bear phase: Manghnani

Mkts could see a sustained bear phase: Manghnani

Anil Manghnani of Modern Shares & Stock Brokers said the key support levels have been taken out of the market. According to him, in the past four years, the 50 week average has never been broken on a closing basis like it did last week and this sends out alarming signals. He added that till the market can cross this average and sustain above it, the market could see a painfully sustained bear phase. Talking to CNBC-TV18, Manghnani said he hopes the market doesn’t hit the 200 week average which is close to 12,000 levels.



Excerpts from CNBC-TV18's exclusive interview with Anil Manghnani:



Q: Have your key support level has been taken out, are you feeling more bearish than last week?



A: I will have to say yes. We have talked about lower bottoms, we have done that after breaking 4,803 we broke 16,457, which was the February retest of the January bottom. So we have broken below those levels and there is another key level that has broken actually. I went back and I think between all the way from 2000 to 2008; 2000 when we had the 3 year bear market and 2004 when we had a four or five month bear phase after the elections in both those instances the 50 weekly was broken. Now between 2004 after having crossed again above the 50 weekly till today or till last week in four years the 50 weekly had never broken on a closing basis. So for that to happen actually it is quite significant otherwise why should something like that happen that has not happened for four years does send out some alarming signals.



Now going forward till the market can again come and cross the 50 weekly and sustain above that I think the bulls have no chance right now. The only option is for the market to come back and sustain above those levels otherwise I think it might be a sustained bear phase. The problem I have is that its only two instances, 2004 and 2001 when we actually broke below the 50-week and closed, we went and hit all the way the 200-week. Now I hope that does not happen this time because if 200 weekly is somewhere close to 12,000 levels. I am basing this theory on what has happened couple of times which maybe not enough times for to sufficiently say that it is going to happen but I think if we do not start trading above 50 weekly very soon, which is around 4,890 then we could really have some significant downside from here.



Q: Have the PSU bank charts broken down in the last one-week?



A: I think the bankex is now getting a little tricky situation I think that is which was the strongest sector throughout last month’s carnage that is showing cracks and I think pretty much because of the way ICICI Bank and Kotak have reacted to some of the subprime news. I think that is what is damaging the charts. I would still probably say it is split between the largecap private banks and the PSU banks and probably the PSUs still not as bad as some of the private banking stocks like ICICI and Kotak.



Q: What do you see on the fertilizers chart now?



A: I think that was pretty much a story through the month of February in anticipation of the Budget. It was the best performing sector along with sugar in terms of midcap F&O listed stocks but I think once nothing came out in the Budget now it has become like any other stock where huge positions have been created which are being unwound now and it is going to move with the rest of the market.



I would not be surprised if any of them go and hit their January lows because if you look at it most of the momentum stocks specially the highfliers in the F&O are going and in fact some of them breaking below their January lows for example stocks like Unitech or some of the banking. I would not be surprised if they all go and retest the January 22 lows now.



Q: Where are these trading favorites going, RNRL at Rs 97, RPL at Rs 148, this is where people are stuck?



A: On the fertilizer pack, pretty much everything is expected now, to at least re-test its January bottoms. RNRL was somewhere close to Rs 79-Rs 80, so I wont be surprised if that is to be tested, and the other thing is that whenever the index has not reached, its previous bottom, in this case, 4,448, and stocks start to break January 22 nd lows, those stocks get hammered, its happened in L&T this morning, no surprise because Rs 3,000 was the January 22nd low, and the fact that it closed below that on Friday at Rs 2,970, it was bound to happen.



We saw that in stocks like Bank of India, once they broke Rs 300 odd which was the low on January 22 nd, it got hammered, Unitech Rs 305 was the January 22 nd low, when that was taken out last week, that took a crack, so we are seeing it pretty much across the board, whichever stock is breaking the 22 nd January lows, that signifies that it means it wasn’t a panic bottom formed for that day, and now today, those lows on 22 nd were just pretty much, NSE may have squared up your positions of banks which lend you money may have squared up your positions, so they were not done by you but forced upon you but when they start trading below those levels means actually somebody is coming and selling at these levels, it is not being forced to sell, there is no margin pressure, so actually delivery based selling is getting triggered, which could be actually programmed trading and any break below the 22 January low, on any stock, triggers a further sell off.



Coming back to levels, if you draw a trend line, from the May 2006 bottom on the Nifty, It actually hit somewhere around 4,620 today, so I am not overly surprised, that around 4,630, levels the market has bounced back, because that’s a major trend line support, whether that will hold going forward is again any body’s guess because we are in a bear phase. Any trade between the 50 weekly and the 200 weekly is bear phase in the market.



Q: What do you see happening on some of these private sector bank charts like an Axis or even a Kotak Mahindra Bank?



A: I think Kotak is getting scarier by day. I think this whole subprime is probably now spooking the market beyond anybody’s expectation. Six-eight months back when the real subprime hit the US at that time there were lot of rumours in the market that maybe ICICI Bank has exposure and that time it flatly denied that there is any problem or they have any exposure to subprime whether directly or indirectly and it is unfortunate that it has come at a time when the market is anyway in a bad phase and now even good stocks which may not have subprime worries or not have any stake out there are getting butchered.



If you take the high of Kotak Mahindra it is Rs 1,400 and now its at sub-600 and you can’t even call it a midcap, it is probably one of the frontline banking stocks. So when those stocks start falling 60%-70% there is some sort of problem out there. The way these stocks are falling, there is no one to say whether they cannot go back to last year’s low when the market was 12,000 levels, Kotak started off from Rs 400 or Rs 300 to move this fantastic move upto Rs 1,400 there is nothing to say that it cannot come back to those levels.



So I think it is pretty scary picture out there and probably banks at least the private sector for the time being till the subprime issue gets sorted out even domestically, maybe an avoidable stock for the time being.

RComm will give Esops to 20,000

MUMBAI: Just when you though employee stock options (Esops) had been given a quiet burial, it seems to be finding its way back.

On Sunday, Reliance Communications (RComm), the telecom arm of the Anil Dhirubhai Ambani group (ADAG), said it will offer up to 1.75 crore shares of the company to about 20,000 employees. At current market prices of a little over Rs 545 for each RComm share on BSE, the plan is worth about Rs 950 crore.

It was put in place to share the growth in value and reward its employees for having participated in the unprecedented success of the company, a press note issued by the group said. When looked at from a macro perspective though, the announcement is a significant one. In some sense, it signals how intense the telecom battle has gotten in the country. To get a sense of that, it is important to first come to terms with how the industry is evolving in India.

While the Indian telecom business is the world’s fastest growing, it is also maturing quickly. Most telecom analysts reckon the industry now has an upside of roughly 300-350 million subscribers before growth begins to plateau. By no stretch of imagination is that a number to be piffled at.

That said, the fact is that instead of consolidating, the business is attracting newer entrants. Many have applied for licences and an ugly battle for spectrum is being played out. Over the next couple of years, therefore, incumbents in the business will have to share the spoils with a lot more competitors than those that exist today.

The entry of new players will also translate into them battling for people. For any player to have a good chance at grabbing the telecom upside, it will need to retain people. When looked at from that perspective, Esops seem a good enough incentive as any to retain people. The announcement also makes RComm the first player in telecom to offer its people Esops. There is a good chance competition may feel compelled to follow suit.

RComm was the first telecom company to offer key executives an Esop plan. But that was in the days when the Ambani brothers were together. In October 2000, Dhirubhai Ambani, the family patriarch had put in place three conditions for investing in telecom business.

One, that RIL will invest up to 50% capital for the new venture. Two, that the family will get an equal stake.

And finally, that the investment must present a considerable upside for all stakeholders. Based on these guidelines, it was decided that RIL and the family will get 45% each in the telecom business while the balance will go as Esops. Since then the brothers split and a bitter battle was fought around elder brother Mukesh Ambani’s sweat equity in the company. The episode was buried when the Ambani empire was split between both the brothers.

Split end: Face value of Rs 1/share mooted

n a move that has significant ramifications on the capital markets, a Securities and Exchange Board of India panel has recommended that the face value of shares be made a uniform Re 1 in two phases. Run-up to Budget 2008-09

In the first phase, said the primary market advisory committee of SEBI, all forthcoming IPOs be priced based on a mandatory Re 1 face value per share.

In the second phase, listed entities having shares with more than Re 1 face value be asked to bring it down to the uniform value.

A DNA Money analysis shows that 93 per cent or 2,783 out of 2,962 currently listed companies have share face values ranging between Rs 2 and Rs 100.

Such divergence makes it difficult for an investor to compare companies using a simple, common yardstick of share price or dividend paid.

But what happens in the case of a stock split?

"For a face value Re 1 share, an equivalent number of shares would have to be issued (a de facto bonus). This will augment liquidity. This has been done in the past and can be done in the future, too," said T V Raghunath, ED, investment banking, Kotak Mahindra Investment Banking.

Another banker with a US-based brokerage, who did not wish to be named due to compliance reasons, agrees since fractionalisation beyond Re 1 is not possible, companies can only improve on it. "So stock-splits would not be possible. Companies will be forced to issue bonus shares. We will move back to the old days when there was no concept of a stock-split."

He said the recommendation does not help the retail investor much because in IPOs, they act based on demand from qualified institutional buyers. "They are not savvy enough to do the earnings per share math," he said.

Deepak Jasani, head of retail research at HDFC Securities, said there is a positive rub-off, too: companies will not be able to play around by splitting the face value at regular intervals.

"On the negative side, investors will get attracted to the low price due to the small face value, irrespective of other considerations like price-earnings ratio, price to book value, dividend yield, etc. This is all the more applicable for new firms that are setting up large projects and have long gestation periods. If the suggestion is implemented, it could be misused by a lot of promoters," Jasani said.

Ambareesh Baliga, vice-president of Karvy Stock Broking, says the move also spawns a perception issue: "To many investors, Rs 10 shares trading below Rs 100 will start looking like penny stocks once the face value is reset. This will mean a major mindset-change will be needed for the serious investor," he said.

The panel recommendation would be discussed at the next SEBI Board meeting —- the first under the new chief C B Bhave.

But why Re 1?

Regulatory sources said the panel thinks bringing face values down for compliance is a better option than asking firms to raise it to a uniform Rs 10 or Rs 100.

"If it was kept Rs 10 then companies that have a face value below that number would have to hike it. No company has a face value below Re 1. So it was pegged at the base," the source said.

The proposal had been discussed for quite some time, but the final recommendation of has come just now. After being discussed at the SEBI board level, the recommendations would be put out as a draft for public comments before becoming the norm.

Come in from the cold at Cooking Matters

On its business card, Cooking Matters bills itself as a place "Where food and style come together." And this is true in several ways. Its shelves are filled with domestic and imported products, dedicated to foodies. There is gourmet pasta and sauce, imported teas and coffees, spices, chocolates, a wall of designer hot sauces, and cunning coffee and teapots, as well as a few other modern cooking utensils.

In addition to the variety of nonperishable items, there is also a counter to buy fancy cheeses, pastries, and takeout soups and sandwiches. And there is a dine-in menu, which is where we come in.

We found Cooking Matters while searching for stocking stuffers for the foodies on our holiday list but ended up staying for lunch. We have been back for lunch, breakfast, and afternoon coffee and pastry several times since. We love the high bar tables and stools, the cool jazz on the sound system and utterly laid-back atmosphere.

IDFC may buy StanChart MF for $205 m: Sources

IDFC may buy StanChart MF for $205 m: Sources

IDFC is likely to buy StanChart MF for USD 205 million, reports CNBC-TV18, quoting sources. IDFC-StanChart deal is likely to be closed soon. Sources have revealed that the deal is at 70% higher valuation to what UBS was to pay StanChart. Earlier, UBS was to buy StanChart MF for USD 120 million. The other bidders for StanChart MF are Indiabulls and Shinsei Bank.

Apollo Hospitals group will soon be branching out a separate R&D wing.

Apollo Hospitals group will soon be branching out a separate R&D wing.

The group aims to form a full circle in the healthcare segment by
forming a separate R&D wing, which is expected to have
collaborations with premier global research organizations including
the US-based National Institutes of Health (NIH).

The group will be setting aside about Rs 100 million from its
revenues, to be pumped into the R&D wing. Besides, the group will
build up a team with scientists from the US and India to focus
primarily on cardiac-related diseases initially.

The group has over nine centers of excellence and the centre for
cardiology and cardio thoracic surgery, is claimed to be the largest
cardiovascular groups in the world. The group is also planning to
have collaborations with the US-based NIH and a decision towards
this is expected next week.

Adhunik Metaliks Ltd will spend Rs 422 crore

Adhunik Metaliks Ltd will spend Rs 422 crore over 17 months to
increase production of key inputs for steel making and grow profits, a
senior official said on Thursday. The firm is aiming at net profit of
Rs 96 crore in 2007/08, and Rs 176 crore in 2008/09, director Manoj
Kumar Agarwal said.

It will set up a 17 megawatt power plant and expand capacities of
sponge iron and ferro alloy at its plant in Orissa, he said. The firm
will also set up railway connectivity to transport key inputs to the
plant site. Adhunik has tied up with banks and financial institutions
for raising Rs 274 crore as term loan for the project.

Adhunik Metaliks Ltd will spend Rs 422 crore

Adhunik Metaliks Ltd will spend Rs 422 crore over 17 months to
increase production of key inputs for steel making and grow profits, a
senior official said on Thursday. The firm is aiming at net profit of
Rs 96 crore in 2007/08, and Rs 176 crore in 2008/09, director Manoj
Kumar Agarwal said.

It will set up a 17 megawatt power plant and expand capacities of
sponge iron and ferro alloy at its plant in Orissa, he said. The firm
will also set up railway connectivity to transport key inputs to the
plant site. Adhunik has tied up with banks and financial institutions
for raising Rs 274 crore as term loan for the project.

Madras Cements buys back shares worth Rs 32 cr

Madras Cements on Wednesday said it has bought back shares worth about
Rs 32 crore, representing 49.72 per cent of the total buyback offer of
Rs 64.47 crore.

The company has commenced the offer last week and has bought back
85,225 equity shares amounting to Rs 32 crore, Madras Cements said in
a communique to the Bombay Stock Exchange.

Last month, the company had said it would buy-back shares worth over
Rs 64.47 crore, representing 10 per cent of the paid-up capital and
free reserves of the company as of March 31, 2007.

For the buyback, the company would pay not more than Rs 4,200 per
share, Madras Cements had said.