Brief of Agricultural Reforms 2020

Brief of Agricultural Reforms 2020

The President has given his assent to three new agricultural reform bills that were passed by the Parliament in its monsoon session this year, which have been discussed below:

1. The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020: The objective of the bill is to give farmers the option to sell their produce outside of the mandis registered under the Agricultural Produce and Marketing Committee (APMC). It enables farmers to sell their produce to private players outside APMC, thereby providing them the freedom to sell to an alternative platform. In an effort to transform the entire nation into one agricultural market, the bill is expected to encourage barrier-free inter and intra-state trade, along with electronic trading, thereby transforming the entire nation into one agriculture market.
2. Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill, 2020: This bill aims to empower farmers to enter into contracts with agri-business firms or large retailers at a pre-agreed price for their future produce. It provides a framework on the trade agreements for the sale and purchase of farm produce (to be entered in prior to its production or rearing), and lists the terms and conditions for its supply, quality, grade, standards and price. It aims to help farmers eliminate the uncertainty related to selling of produce once harvested and ensuring more assured returns.
3. Essential Commodities (Amendment) Bill, 2020: The bill aims to remove key food grains such as cereals, pulses, oilseeds, potatoes and onions from the ‘essential commodities’ list. It thereby aims to deregulate the production, movement, storage and distribution of these commodities and eliminate stock-holding limits. The amendment could attract investment from private players in the value chain of these commodities, especially post-harvest infrastructure such as cold-chain and storage facilities. It aims at removing reservations, if any, which private companies might have had earlier by eliminating the possibility of attracting sudden stock holding limits.

Various Challenges can be shown in picture form as:

The agricultural sector is the primary source of income for almost 58% of India’s population, but contributes around 15% of India’s GDP. Between 1970-71 and 2015-16, with the number of farms more than doubling from 71 million to 145 million and the average farm size reducing by more than 50% from 2.28 hectares to 1.08 hectares, the agricultural sector has not been very remunerative for farmers in recent years. With the Government’s objective of doubling farm income by 2022 in mind, these three agricultural reform bills may possibly play a crucial role in strengthening the linkage between farmers and the market forces and increasing investment in agricultural infrastructure over the long term.

Sources: Various publications

Disclaimer: The information provided herein is based on publicly available information and other sources believed to be reliable, but involve uncertainties that could cause actual events to differ materially from those expressed or implied in such statements. The document is given for general and information purpose and is neither an investment advice nor an offer to sell nor a solicitation. While due care has been exercised while preparing this document, we do not warrant the completeness or accuracy of the information. We will not accept any liability arising from the use of this material. The recipient of this material should rely on their investigations and take their own professional advice.

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IPO Analysis: UTI AMC

IPO Analysis: UTI AMC

UTI AMC is in the business of managing the domestic mutual funds of UTI Mutual Fund, provides portfolio management services to institutional clients and high net worth individuals like Employee Provident Fund Organisation, National Skill Development Fund, Postal Life Insurance, and manages retirement funds viz. NPS, offshore funds like Shinsei UTI India Fund, and alternative investment funds catering to a diverse group of individuals, institutional investors, banks, trusts, and NRIs. It is incorporated on 2002.

Key Facts

According to CRISIL, UTI AMC is the largest AMC in India in terms of Total AUM, seventh-largest AMC in India in terms of mutual fund QAAUM with Rs 1,542.3 billion, and also has the largest share of monthly average AUM amongst top ten Indian AMC coming from B30 cities.

The management fees from domestic mutual funds account for 72.7% of the total income of the company.

• AMC has established the first mutual fund in India and has been in the asset management industry for more than 55 years with a strong history and proven track record in mutual fund mutual industry with strong brand recognition.
• AMC has 11 million live folios accounting for 12.8% of client base managed by the Indian mutual fund industry.
• AMC has a national footprint with 163 UTI Financial Centres, 273 Business Development Associates and Chief Agents and 33 other Official Points of Acceptance. UTI AMC also has approximately 51,000 Independent Financial Advisors.
• AMC has four sponsors SBI, LIC, PNB and BOB each of which has the Government of India as a majority shareholder. UTI AMC also has a global asset management company T. Rowe Price International Ltd as one of its major stakeholders with a 26% stake in the Company.
• As of September 30, 2019, UTI AMC manages 178 domestic mutual fund schemes, comprising equity, hybrid, income, liquid, and money market funds.

About IPO:

The IPO comprises an offer for sale of up to 3,89,87,081 equity shares by five shareholders.

State Bank of India, Life Insurance Corporation of India and Bank of Baroda will sell up to 1,04,59,949 equity shares each via public issue, while Punjab National Bank and T Rowe Price International (TRP) will divest up to 38,03,617 equity shares each.

The offer includes a reservation of up to 2 lakh equity shares for eligible employees. The total offer would constitute at least 30.75 percent of the post-offer paid-up equity of the company.

One can bid for a minimum of 27 equity shares and in multiples of 27 equity shares thereafter.

As of June 2020, its distribution network includes 163 UTI Financial Centres (UFCs), 257 Business Development Associates (BDAs) and Chief Agents (CAs) (40 of whom operate Official Points of Acceptance (OPAs)) and 43 other OPAs, most of which are in each case located in B30 cities. The company also has offices in London, Dubai, Guernsey and Singapore, through which it markets offshore and domestic mutual funds to offshore investors who seek to invest in India.

Aggregate AUM of the Indian mutual fund industry has grown at a healthy pace over the past ten years, against the backdrop of an expanding domestic economy, robust inflows and rising investor participation, particularly from individual investors. Average AUM grew at a CAGR of 13 percent from Rs 7.6 lakh crore (trillion) as of March 2010 to Rs 27 lakh crore as of March 2020.

Verdict:

As per SEBI guideline SBI, Bank of Baroda and LIC is existing from UTI AMC, for which IPO is launched. Since this company is working with investment in PMS and mutual Fund, this business is still untapped with huge potential. Hence one can apply for this IPO for long term, as i don't think any listing gains. 

Sources: Various publications

Disclaimer: The information provided herein is based on publicly available information and other sources believed to be reliable, but involve uncertainties that could cause actual events to differ materially from those expressed or implied in such statements. The document is given for general and information purpose and is neither an investment advice nor an offer to sell nor a solicitation. While due care has been exercised while preparing this document, we do not warrant the completeness or accuracy of the information. We will not accept any liability arising from the use of this material. The recipient of this material should rely on their investigations and take their own professional advice.

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IPO Analysis: Mazagon Dock Shipbuilders

IPO Analysis: Mazagon Dock Shipbuilders

Mazagon Dock Shipbuilders Limited,  called “Ship Builder to the Nation”, is one of India’s leading Defence public sector undertaking shipyard under the Ministry of Defence. Main activities are construction of warships and submarines with facilities situated at Mumbai and Nhava (under development). They have the capability to build warships, submarines, merchant ships upto 40,000 DWT since 1979.

The business has 2 key operating divisions - Shipbuilding division that undertakes building and repairing of naval ships, whereas Submarine and heavy engineering division includes building, repairing, and refitting of diesel electric submarines. Till 2020, the company has built 795 vessels, including 25 warships, 4 missile boats, 3 submarines, 6 Leander class frigates, 3 Godavari class frigates, 3 Shivalik class frigates, 3 corvettes, and 6 destroyers.

Mazagon Dock shipyard is strategically located on the west coast of India, the sea route that connects Europe, Pacific Rim, and West Asia.

Objects of the Issue:

• To carry out the disinvestment plan of 30,599,017 equity shares by selling shareholders constitutes 15.17% of pre-offer equity share capital
• To achieve the benefits of share listing on the stock exchanges.

Strengths:

• It is the only public sector defense shipyard constructing conventional submarines.
• Mazagon Dock Shipbuilders Limited has world-class infrastructure capable of serving the requirements of the Ministry of Defence.
• Its facilities are located strategically in close proximity to its vendors and customers.
• The company has led to an increase in the indigenization of the vessels and implementation of the “Make in India” campaign.
• It has an experienced board and senior management team with a skillfully trained workforce
  

Verdict:

Another PSU company with unique business and from defense, "Make in India". But don't forget the listing of various other PSU's like HAL, BDL, choshin shipyard, Midhani and many more. I think one should not expect listing gains, for long term portfolio this can be applied.

Sources: Various publications

 

Disclaimer: The information provided herein is based on publicly available information and other sources believed to be reliable, but involve uncertainties that could cause actual events to differ materially from those expressed or implied in such statements. The document is given for general and information purpose and is neither an investment advice nor an offer to sell nor a solicitation. While due care has been exercised while preparing this document, we do not warrant the completeness or accuracy of the information. We will not accept any liability arising from the use of this material. The recipient of this material should rely on their investigations and take their own professional advice.

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IPO Analysis: Likhitha Infrastructure Ltd

IPO  Analysis: Likhitha Infrastructure Ltd

Likhitha Infrastructure Ltd is an oil and gas pipeline infrastructure service provider in India which got incorporated in 1998. The company is engaged in providing oil & gas pipelines, city gas distribution projects, Cross-Country Pipeline Projects, and operations and maintenance services as well. It is the first company that has executed the first Trans-National Cross Country Hydrocarbon Pipeline Project between India and Nepal.

With 20+ years of existence, it has spread its geographical presence across 16+ states and 2 Union Territories in India such as Delhi, West Bengal, Telangana, Gujarat, Andhra Pradesh, Madhya Pradesh, Bihar, Chandigarh, Haryana, Kerala, Orissa, Uttar Pradesh, etc. 

Company has a strong client base in India including both the private and public players such as ONGC, HCG, IndianOil, GAIL, etc.

Order Book

The company has a strong client base consisting of leading gas distribution companies in India including both the private and public players and a strong order book (i.e. the unexecuted portion of the much larger total contract value) of approximately Rs 663 crore as on July 2020.

Financials and Peers

Likhitha Infrastructure's revenue from operations grew by 15.6 percent to Rs 161.24 crore in year ended March 2020 compared to previous year and in FY19, revenue increased 60.2 percent to Rs 139.48 crore compared to FY18. Revenue growth in FY15-FY20 stood at a 38.96 percent CAGR and profit 58.56 percent CAGR.

Profit for the financial year 2019-20 rose 11.3 percent to Rs 19.88 crore YoY and the same grew by 149.3 percent to Rs 17.85 crore in FY19 YoY, while on the operating front, its earnings before interest, tax, depreciation and amortisation (EBITDA) increased 2.6 percent YoY to Rs 29.67 crore in FY20 and 158.7 percent YoY to Rs 28.9 crore in FY19.

EBITDA margin for the FY20 stood at 18.40 percent against 20.72 percent in FY19 and 12.83 percent in FY18.

Competitive strength

• Diversified geographical presence in India
• Strong client base
• Efficient business model
• Strong project execution capabilities  
• The company has a strong presence in India and significant experience; 
• Growth is largely attributable to its efficient business model which involves careful identification and assessment of the project with emphasis on cost optimisation which is a result of executing projects with careful planning and strategy; 
• Strong financial performance with emphasis on having a strong balance sheet and increased profitability; 
• Scalability of operations; 
• Strong Project execution capabilities
• Long term relationship with clients and repeat business; 
• Highly experienced management team; 
• Diverse fleet of sophisticated equipment.
  

Business Strategies:

• Continue to expand and enhance presence in regions where it has previously developed a strong base of operations;
• Further growth in operation & maintenance services offerings;
• Retaining skilled manpower;
• Company constantly endeavors to improve business operations to optimise the utilization of resources;
• Continue to develop client relationship and expand client base;
• Focus on performance and project execution;

Verdict:

This is a very small company coming up with very small IPO value. After analyzing its financial ratios it is very well concluded that company has debt/ taken heavy loan which is not good for such a small company. This company has no listed peers that's why business seems unique but this is not the fact as their are many companies available in market. This company don't have any long term orders available in its kitty. Doesn't have much pricing power to take projects. No fixed clients. Reported negative cash flows in FY 2017. 

Grey market price is also not available. In my view one should wait upto third day of IPO to see its subscription (By second day end atleast IPO subscription should be 2 to 3 times). This IPO can be avoided for listing gains as well as for long term investment.

Sources: Various publications

Disclaimer: The information provided herein is based on publicly available information and other sources believed to be reliable, but involve uncertainties that could cause actual events to differ materially from those expressed or implied in such statements. The document is given for general and information purpose and is neither an investment advice nor an offer to sell nor a solicitation. While due care has been exercised while preparing this document, we do not warrant the completeness or accuracy of the information. We will not accept any liability arising from the use of this material. The recipient of this material should rely on their investigations and take their own professional advice.

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