Showing posts with label IPO. Show all posts
Showing posts with label IPO. Show all posts

Saturday, April 27, 2013

"Despite opportunities, the company faces several risks"

Rick Summer, Senior Stock Analyst, Morningstar, talks to B&E's Amir Moin about the future prospects of the world's largest online social network

B&E: Do you think Facebook will be able to innovate on its business model with all the money it has raised from the IPO. If yes, how?
Rick Summer (RS): Facebook announced a new service called Facebook Exchange that allows advertisers to capture information about users’ browsing history and employ real time bidding strategies for more relevant ads on the Facebook website. The service is set to launch in the next few weeks. In our view, this service signals the most consistent trend that we expect for Facebook’s future – the company will need to continue investing in deep technology solutions to maximize the value of its user base to advertisers. Moreover, the company will need to marry the capabilities of ad formatting, measurement, relevancy, and reach for advertisers in order to achieve our forecast growth rates and continue the shift of advertising dollars from offline media to Facebook.

B&E: In its disclosures before the IPO, Facebook made it clear that revenue growth had declined from 155% to 45% and will continue to decline. What are your views on Facebook’s current business model. Do you think Mark Zuckerberg rushed with the entire IPO thing?

B Facebook’s platform capabilities provide important assets for growth and competitive advantage. We believe optimism is warranted, but the market may not appreciate several near-term challenges facing the company. First, there is a lack of best practices for advertisers to measure the return on their advertising dollar. In our research, advertisers and agencies have commented that the lack of standards or clear returns on investment in running social advertising campaigns presents a challenge, although the massive user base is too compelling to ignore. However, if agencies and advertisers are not able to develop acceptable tools for measurement, growth in social advertising may stall and the value of Facebook will be as generic as any other website that drives traffic.

B&E: How do you value the stock at the moment. What do you expect from Facebook in terms of growth and profitability?

RS: We value Facebook at $32 per share, representing an enterprise value of approximately $71 billion. Our valuation represents a multiple of 59 and 71 times our 2012 earnings per share and free cash flow estimates, respectively. In modeling the company, we forecast 10 years of financial statements. Admittedly, there is a great deal of uncertainty about the ultimate growth trajectory and profit profile of the company, but the exercise is important to us for several reasons. First, we believe the company will reach its structural maturity within 10 years, whereby it has normalised operating margins and cash flow yields. Second, understanding the size of the revenue opportunity at the end of our explicit forecast period helps quantify our level of optimism about the firm’s revenue potential. While we would not feel comfortable about our level of precision in forecasting the absolute level of revenue in three years, we do think our 10-year forecast results in a fair representation within a range of possible outcomes.


Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri
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Saturday, March 23, 2013

P. Kothari

Prithviraj Kothari, President, Bombay Bullion Association & Managing Director of The Mammoth Rs.17,500 crore RS Bullion Ltd (RSBL) speaks to B&E’s Mona Mehta on The Company’s overseas Acquisition plans, Growth Ambitions and The General scenario in The Gold and Silver Market

B&E: You have been recently appointed as president of Bombay Bullion Association (BBA). Amidst rising gold & silver prices, what will be your agenda for the yellow & white metal market?
PK: Firstly, we want BBA to be recognized as an industry body on a global platform. This is because currently, some 1 million Indian families are involved as artisans in the gold & silver jewellery market that generates a business of Rs.8 trillion. Hence, we feel that their demand should be met at par with that of international standards. Besides, we feel that there has to be a rise in arbitrage in the Indian gold market. Currently, BBA boasts of 460 members from Mumbai & plans are to increase the number of members to 1,000 from the international market. To start with, the officials of London Clearing Exchange (LCE) are arriving in India & would be meeting the BBA board of directors (to set up an LCE branch here). Clearing Houses are organisations associated with an exchange to handle the confirmation, settlement & delivery of transactions, hence fulfilling the main obligation of ensuring that transactions are made in a prompt & efficient manner. They are also commonly referred to as “clearing firms” or “clearing houses”.

B&E: What would be the function of the London Clearing House (LCH) & its warehouses in India, once LCH is set up in India? How will it benefit the individual companies trading in bullion exchanges & also the members of the Bombay Bullion Association?
PK: The officials of LCE are arriving in India to set up a clearing house in order to take responsibility of stocking & delivery to SEZs & international clients. In case the order has been taken & the supplier is short of stock, then he can make & order with the Clearing House to deliver the stock & the party will make the payment. The purpose of the visit of LCE will also be to set up London Clearing House & warehouses in India. Since India’s economic growth is expected to cross 9% by the end of this fiscal, international trading firms are eyeing it as an investment destination.

B&E: Is RSBL also looking at acquiring gold mines in the overseas market? If yes, what are your plans with regard to funds in this regard?
PK: Yes, RSBL is planning to acquire two to three gold mines in US. The initial requirement for acquisition of mines would be around Rs.2 billion, which we will raise within one year through banks. And in the next two to three years, RSBL is planning to come up with an initial public offering (IPO) with an aim to raise Rs.3-4 billion.

B&E: But what will be the rationale behind acquiring mines?
PK: Once we acquire mines in US, we will look at setting up exclusive branded traditional jewellery retail showrooms in India, so that we can source gold from the acquired gold mines in US & make bars & coins to sell them through the upcoming showrooms in India. Besides, we will source 2000 carat diamonds from the local market to make diamond jewellery & sell them through the showrooms. Currently, apart from having 200 in-house designers, we have recently roped in four exclusive designers to design exclusive jewellery for us, which will ultimately be sold as private labels through our exclusive jewellery showrooms. For the purpose, RSBL is planning to invest around Rs.500 million.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

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Monday, October 29, 2012

PRIMARY MARKET: IPOS

With two IPOs hitting its shores one can finally see some sign of life in the primary market again. But is the market really ready? manish k. pandey acts investor... oops investigator!

But, despite the optimistic signs in the fund raising environment, there is a looming tsunami that threatens any momentum: the Budget has projected a deficit of 6.8% of GDP in fiscal 2009-10 and to finance this, the government will borrow about $80 billion from the market, which may further squeeze out the private sector, directly impacting their fund raising capabilities (Knowledge@Wharton). This statement certainly supports the contrarians who believe that the market still has a long way to go before it can finally take on to the IPO rush. “In reality, there is no rush of IPOs. It’s only media hype. Despite the secondary market being on an upward trend since March this year, we have had only 4 IPOs/FPOs raising Rs.4.43 billion. There was a huge expectation that this Budget would set the right tone for the secondary market, a prerequisite for the primary market. But, the immediate market reaction has shown that it is not very impressed,” avers Prithvi Haldea, Founder and CMD, Prime Database.

Certainly, a sense of stability in the secondary market is critical for IPOs to happen. This is because, one, when the appetite for listed stocks is also minimal, to expect new issues to find favour is hard and second, an issuer has to take a call of a stable market at least 30 days ahead (the time it requires to open and list an IPO). Since this stability or continued buoyancy is still not being seen, IPOs are not happening. In fact, as many as 17 companies are holding SEBI approval (typically the last hurdle in the launch of an IPO) for months now to raise Rs.69 billion, but are not daring to enter the market. “So at best, the next 3-4 months can see only 34 companies (holding and awaiting approval) hit the market,” says Haldea. Raison d’être: Issuers are finding the future outlook uncertain.

This can be seen by the fact that despite nearly 700 companies wanting to do an IPO, just four companies have filed their offer documents with SEBI since April this year. This certainly points out in the direction that the market is not yet ready for another big wave of IPOs.


Source : IIPM Editorial, 2012.

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IIPM : The B-School with a Human Face
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