Niraj Cement Structurals has entered the capital market on 26th May 08 with a public issue of 32.50 lakh equity shares of Rs.10 each in the band of Rs.175 to Rs.190 per share.
The company is a pure contracting company mainly engaged in road construction projects more as a sub-contractor. The sector has been witnessing good growth for the last 2 – 3 years and all the listed peers of the sector has been posting a growth of about 50% annually. However, this company seems to have almost stagnated on topline while posting a declining trend on bottomline. Total income for FY 06 was at Rs.70 crores with PAT of Rs.7.80 crores which was at Rs.93 crores as total income for FY 08 with PAT at Rs.6.53 crores.
However, this performance has been achieved after huge rise in sundry debtors, which were at Rs.103 crores as at 31-03-08. This represents for 410 days of sales against industry average of about 120 days. Debtors have been rising disproportionately for the last two years from Rs.33 crores as at 31-03-06 to Rs.60 crores as at 31-03-07. One does not know the quality of these debtors as debt of Rs.34 crores as at 31-03-08 are more than 6 months old. As the company has been executing most of its work as sub-contractor, it is subject to scrutiny, reconciliation, claims and counter claims between sub-contractor and principal contractor as also between principal contractor and project owner.
The company now intends to mobilize about Rs.57 crores at the lower band of Rs.175 per share, which is mainly required for purchase of capital equipments of Rs.21 crores and for working capital of Rs.18 crores. It is strange to see that the company is expecting total income of Rs.350 crores for FY 09, a rise of over 270% from FY 08 topline and estimating debtors of just Rs.60 crores with a cycle of less than 63 days. Any increase in its level of activity would put extra burden by way of working capital and Rs.18 crores allocation would not be sufficient. Sundry Debtors, which have been on a rise with every passing year from Rs.14 crores as at 31-03-04 to Rs.103 crores as at 31-03-08, are estimated to be just at Rs.60 crores as at 31-03-09 despite a steep rise in the topline. Seems impossible.
FY08 EPS of the company was at Rs.9.18 and issue at the lower band of Rs.175, translates into a PE multiple of 19 times. All other similar companies are ruling at a PE multiple of 6 to 9 times. Share of the company is also listing only on Bombay Stock Exchange which would also be a negative for the stock.
Considering these aspects, issue is very expensive and hence advised to remain away.
Thursday, May 29, 2008
Niraj Cement Structurals: Weak foundations
Bafna Pharmaceuticals: Say Na Na
Bafna Pharmaceuticals has entered the capital market on 27th May 08 with a public issue of 64 lakh equity shares of Rs.10 each at a premium of Rs.30 per share with an issue size of Rs.25.60 crores.
The greed of the promoters of the company has really spoiled the financial health of the company. Paid-up equity of the company ballooned from Rs.2.87 crores (as at 31-03-07) to Rs.9.58 crores (as at 31-12-07), which would rise to Rs.15.98 crores, post issue, largely due to bonus issue of Rs.2.32 crores and fresh issue of Rs.3.40 crores which has merely contributed share premium of Rs.89 lakhs. Strangely, Capital Structure shows share premium before the public issue only at Rs.71 lakhs in the Prospectus. Due to this, book-value per share stood at Rs.12.50.
Considering FY07 financial performance of the company, which had an EPS of Rs.2.50, share, share is now being issued at a PE multiple of 16 times. Results for first 9 months ending 31-12-07, even presents depressing results wherein topline was at Rs.25 crores with PAT of Rs.1.30 crores which translates into an annualized EPS of Rs.1.80 only. Strangely, on 01-10-07. The company had issued shares at three different rates of Rs.10, Rs.20 and Rs.30 to promoters as well as non-promoter shareholders. Difficult to accept.
The financial performance of the company is pathetic to say the least. For FY06, total income of the company was at Rs.21.36 crores on which PAT was at Rs.85 lakhs. In FY07, total income rose to Rs.38.62 crores with PAT of Rs.97 lakhs. But the rise in bottomline has happened due to profit on sale of fixed assets of Rs.63.46 lakhs. Even sundry debtors as at 31-03-07 were at Rs.18.40 crores representing sales of 175 days.
It worsened for 9 months ended Dec. 07 wherein total income was at Rs.24.70 crores with PAT of Rs.1.30 crores. Sundry debtors as at 31-12-07 were at Rs.20.61 crores representing sales of 225 days. Debt equity ratio of the company at 31-12-07 were close to 2 : 1.
Considering an annualized EPS of less than Rs.2 for FY 08 it results in a PE multiple of 20 times while similar companies are ruling at a PE multiple between 4 to 6 times with much better credentials. Also, only BSE listing is another dampener.
If we have these kind of issues coming to the market, it will definitely spoil it or may revive speculative activity on listing, which is being witnessed in some of the issues that have tapped the capital market recently.
Sunday, May 25, 2008
Grey Market Premium Dt. 25-5-2008
Grey Market Premium Dt.
| Company Name | Offer Price (Rs.) | Premium (Rs.) | Kostak (Rs. 1 Lac.) |
| Gokul Refoils | 195 | 12 to 15 | --- |
| Anus Laboratories | 210 | 30 to 35 | -- |
| Niraj Cement | 175 to 190 | 15 to 17 | 1700 to 1800 |
| Bafna Pharmaceutical | 40 (Fixed Price) | 8 to 10 | 1900 to 2000 |
Sunday, May 18, 2008
Grey Market Premium Dt. 18-5-2008
SEBI nods in reliance infratel & MCX IPOs
Both IPOs will come in June 08
Grey Market Premium Dt.
| Company Name | Offer Price (Rs.) | Premium (Rs.) | Kostak (Rs. 1 Lac.) |
| Gokul Refoils | 175 to 195 | 15 to 18 | --- |
| Anus Laboratories | 200 to 210 | 35 to 40 | -- |
| Niraj Cement | 175 to 190 | -- | |
| Bafna Pharmaceutical | 40 (Fixed Price) | -- | -- |
IPO Subscribed
| Particular | Gokul Refoils | Anus Laboratories |
| QIB | 2.72 | 2.93 |
| HNI | 6.58 | 26.97 |
| Retail | 5.59 | 9.64 |
| Employee | 1.05 | 1.0001 |
| Average | 4.27 | 8.43 |
Sunday, May 11, 2008
Anu’s Laboratories: Premium Medicine
Anu’s Laboratories is entering the capital market on 12th May 08 with a public issue of 38.20 lakh equity shares of Rs.10 each in the band of Rs.200 to Rs.210 per share.
The company is basically manufacturer of Basic and Advanced Intermediates and Fine Chemicals. The product range is being enlarges and a new plant for manufacturing drug intermediates including Active Pharmaceuticals Ingredients (API) is being set up, on which, about 70% of fund is being spent. A pilot plant for Contract Research and Manufacturing (CRAM) is also being set up. All these facilities would be operational only by April 09 and hence current year (FY 09) would be operating with the existing manufacturing capacities.
For FY 07 the total income of the company was at Rs.120 crores with PAT of Rs.13.60 crores on an equity of Rs.8 crores, resulting in an EPS of Rs.17. For FY 05, FY 06 and FY 07, PAT of the company grew by over 100% every year. However, growth seems to have slowed in FY 08, looking to its performance for 9 months ending 31-12-07, during which, total income was at Rs.118 crores with PAT of Rs.13.10 crores. Either stagnation or slightly drop in the operating margin in this period.
Whole of FY 09 would not be having benefit of expansion and existing performance would only be servicing expanded equity of Rs.12 crores which may see an income of Rs.240 crore with expected PAT of Rs.26 crores, which may translates into an EPS of Rs.22 on expanded equity base. This implies issue of shares at a PE multiple of about 9 to 10 times at the issue price.
Many prominent API manufacturers with topline of close to Rs.400 crores and EPS being more than 2 times of face value are ruling at a PE multiple of 5 to 8 times. Some of such companies are Aurobindo Pharma, Alembic, Ind Swift, Indoco Remedies, Natco Pharma, Surya Pharma and Nectar Life Sciences.
Nectar Life having expected turnover of Rs.700 crores for FY 08 and PAT of Rs.75 crores with an EPS of Rs.50 is ruling at Rs.250 at a PE of 5. Aurobindo Pharma with topline of Rs.2,000 crores and EPS of Rs.40 is ruling at Rs.330. Surya Pharma, for FY 08 had total income of Rs.500 crores and EPS of Rs.32 is ruling at Rs.112 with a PE of less than 4 times.
Considering all these, there is no justification for subscribing to the share of this company at a PE of 9 times based on its FY 09 earnings. The operations of the company can also be termed as mediocre and hence would be having another negative on listing.
Share is definitely expensive, even at the lower band of Rs.200 as much better stocks are available in the secondary markets. However, considering the recent rallies in Pharma Stocks, one may subscribe with a short term view.
Grey Market Premium Dt. 11-5-2008
Grey Market Premium Dt.
| Company Name | Offer Price (Rs.) | Premium (Rs.) | Kostak (Rs. 1 Lac.) |
| Gokul Refoils | 175 to 195 | 8 to 10 | 1500 to 1600 |
| Anus Laboratories | 200 to 210 | 18 to 20 | 1700 to 1900 |
Wednesday, May 7, 2008
Gokul Refoils and Solvent: GO for it!!
Gokul Refoils and Solvent is entering the capital market on 8th May 2008, with a public issue of 71.58 lakh equity shares of Rs.10 each in the band of Rs.175 to Rs.195 per share. Issue size would be of Rs.125 crores to Rs.140 at the lower and upper end of the price bands.
The company is into solvent extraction, refining of edible oils and vanaspati manufacturing and having capacity of 680 TPD of seed processing, 600 TPD of Solvent Extraction, 1,200 TPD of refining and 200 TPD of vanaspati manufacturing, having its units located at three places in Gujarat.
The company is now setting up a 1,500 TPD Soyabean processing plant and expanding capacity of edible oil refinery from 100 TPD to 400 TPD of Surat unit. The company is presently importing 1.50 lakh tonnes of Palm Oil from South East Asia and 1 lakh tonnes of Soyabean Oil from South America and to have better sourcing, it is planning to open a subsidiary in Singapore. All these are estimated to cost about Rs.175 crores which is partly financed by term loan of Rs.38 crores and balance from the proposed IPO.
For FY 07, the total income of the company was at Rs.1,600 crores with PAT of Rs.26 crores on equity capital of Rs.18.50 crores, resulting in an EPS of Rs.14. For FY 06, topline inspite of being at Rs.1,260 crores had a PAT of just Rs.17 crores only.
For 8 months ending 30-11-07, the total income of the company was at Rs.1,350 with PAT of Rs.42 crores. Lately solvent extraction companies have been doing quite well but they have never received well by the market due to which, discounting to the sector has always been poor. Though year 2007 was good for the sector, due to volatility in this market, pressure on margins of the sector was noticed in March 08 quarter.
Ruchi Soya a leader in the sector had total income of Rs.11,000 crores for FY 08 while PAT was at Rs.157 crores, resulting in an EPS of Rs.8.50 on face value of Rs.2 and equity base of Rs.38 crores. However, since the industry is highly working intensive, it has high interest burden of Rs.105 crores for FY 08. Higher the turnover, higher the need of working capital and hence higher finance cost.
Gujarat Ambuja Exports another prominent leader in the sector having over 14 manufacturing units located in four states had total income of Rs.1,800 crores with PAT of Rs.77 crores for FY 08 resulting in an EPS of Rs.5.57 on face value of Rs.2 and on equity base of Rs.28 crores. This company had a less interest burden at Rs.11 crores for FY 08. This is inspite of the fact that cotton yarn division had made an EBIT of just Rs.1.25 crores on total income of Rs.155 crores for FY 08.
Share of Gujarat Ambuja Exports which is infact can be largely compared with this company but having better financials, is ruling at Rs.48, having a PE multiple of about 9 times. Even Ruchi Soya, market leader, has PE of about 11 times.
Gokul Refoils had a sharp rise in its margin for period ending November 07, which needs to be closely monitored on sustainable basis. Annualised EPS of Rs.33 for FY 08 discounts the issue by about 6 times on the upper band and by about 5 times at the lower band.
At the lower end of band issue seems reasonably priced but has some concern at the upper band. In its fund requirement, Rs.60 crore has been estimated for working capital seems to be inadequate. All these do not provide any excitement for the issue due to low market perception. However, on pure fundamentals, investment is advised.
Monday, May 5, 2008
Grey Market Premium Dt. 4-5-2008
Grey Market Premium Dt.
| Company Name | Offer Price (Rs.) | Premium (Rs.) | Kostak (Rs. 1 Lac.) |
| Aishwarya Telecom | 35 | 12 to 15 | -- |
| Gokul Refoils | 175 to 195 | 10 to 12 | -- |