BEML is entering the capital market on 27th June 07 with a public issue of 49 lakh equity shares of Rs.10 each in the price band of Rs.1,020 to Rs.1,090 per share. One more case of aggressive pricing.
The company has posted its results for FY 07 with a net profit of Rs.204.93 crores (Rs.186.93 crores for FY 06) on total income of Rs.2,479.28 crores (Rs.2,126.92 crores) resulting in an EPS of Rs.55.77 (Rs.50.87), registering a growth of about 10%. During fourth quarter ending March 07 the topline was at Rs.958.48 crores (Rs.836.58 crores for Q4 of FY 06) with net profit at Rs.93.51 crores (Rs.86.12 crores) recording a growth of 8.58%. This means drop in overall growth in Q4. However, EBITDA margin were better in Q4 at 16.19% against 13.51% of FY 07.
The company has announced price band of its issue in the range of Rs.1,020 to Rs.1,090 per share, which is aggressive at the upper band while acceptable at the lower band. In our earlier analysis, we have stated that any price discovery upto Rs.1,000 looks reasonable for the stock. Taking the same stand, the price should get discovered at the lower band.
It has been seen, recently, that the companies, take a look to the institutional investors' appetite and take a call on issue pricing. In this company, with Government of India's stake at 61%, institutional investors are holding 26% while about 13% is held by public. This means, huge appetite on part of institutional investors. But if a PSU starts neglecting retails investors, how can you improve and increase the depth of the capital market and retail investors' interest?
Post price band announcement, price of the share rules at Rs.1,145 in the secondary market. If price gets discovered at Rs.1,090 and share price fall by Rs.55, post issue, it could take away the entire gain, likely to accrue to the investors. Any volatile or bearish state of market, can bring price to that level, and this fear may not attract safe and secure kind of retail investors.
It would have been better if upper band would have been fixed at Rs.1,000. We wish that price gets discovered at Rs.1,020 in the larger interests of retail investors and to improve depth of the capital market.