May 30, 2006

Allcargo Global IPO

Allcargo, a company that I spoke of in my previous blog. A prospectus that will make you sleep quite comfortably. To the point, I think this is yet another company that is promising more than average returns though it looks like the company has the prospects to do so.

The company is involved in logistics and has quite a history in this field. However, you will see that the company has used a few paragraphs repeatedly throughout the prospectus. In the first instance it was unnecessary as any person who is reading the first section will remember what he read and even if he does forget, a simple remark of the page would have done so. However the company insists on repeating forcing the reader to re-read. Anyways, writing a prospectus seems to be an art which ENAM is yet to master and I shall hopoefully not delve on this issue any longer.

What I liked of the company was the prospects of the industry. Again the company's will be extremely dependent on the infrastructure that the government needs to invest in. However, given the fact that considerable investment is being done by the government atleast in the improvement of ports, this company is promising to deliver something that is achievable.

The pricing is also comfortable. It recently had placed a part of the equity to outsiders at similar prices hence making the company slightly more reliable. However, the company's promoters loved to juggle their shareholding at extremely cheap prices. A share that the company's promoters should have sold for atleast Rs.350 was sold for Rs.10. Also the company has given stock options at Rs. 10 which can be exercised in the near future. However, this will not dilute the stake as it marginal in nature and would not affect the profitability when charged to the income statement.

The investment proceeds will be used for building infrastructure for the company in certain regions such as Chennai. Also, the money will be used to pre-pay debt. This is something I was not comfortable as the cost of the loan is only 11%. The company has strong cash flows and could have used that to re-pay the loan. However, this is the company's decision.

Anyways, the company has fairly valued its stock and do not know if it provides reasonable appreciation. However, when one compares to its peers, it looks there is some. Time would be the judge for this. Investing would be ideal for a period of 3 years, is my best estimate. Why 3 and not 5? Coz I am a long term investor, and prefer 3 over 5.


Anonymous said...

Good work... Throw some light on upcoming DLF IPO as well

M B Mahesh said...

thanks..Shall try to do it once i get my hands on the prospectus ;)