Texaco Pipes: PIP it

Texmo Pipes and Products is entering the capital market from 16th Feb, 2010 to 19th Feb, 2010 with a public issue of 50 lakh equity shares of Rs. 10 each, in the band of Rs.85 to Rs.90 per share.

This Madhya Pradesh based company clearly thinks that in the current market, retail investors have an appetite for an issue like this. It has two manufacturing units, located adjacent to each other at Madhya Pradesh. The company is a manufacturer of PVC and HDPE pipes, with the current installed capacity of PVC pipes standing at 25,094 MTPA and that of HDPE at 11,023 MTPA. It is raising money from the market to expand the total capacity of PVC pipes to 41,674 MTPA. It plans to diversify into making woven sacks and injection mouldings. It also plans to make CVPC pipes, drip inline pipes and DWC pipes.

Out of the total order of Rs.30.42 crore received in FY09, 16.26% came from Idea Cellular, 7.43% from Tata Communciations, 1.53% from Aditya Birla Tele and rest from small sized companies. 53.02% orders came in FY09 from the agriculture sector, 24.89% from the telecom, 16.15% from potable water segment and 5.94% from others. As at 31st Dec 2009, the company had 169 dealers and looks like the 11 distributors, who were there in FY09 were given the boot.

For the seven month period ended 31st Oct 2009, the company had a net sales of Rs.39 crore, on which it posted a net profit of Rs.3.36 crore. Its cash and bank balance for the period was at Rs.1.15 crore. Its loans, secured as well as unsecured stood at Rs.25.88 crore, which is almost six times its earnings. With interest rates expected to start going up, this size of debt for the size of operations which the company has, does not seem like a good idea. Even net worth of Rs.15.22 crore results into a debt equity ratio of 1.70:1.

Post issue, promoters holding will stand at 55.63% while 43.48% will be held by the public.

At the upper price band of Rs.85, its PE based on EPS as at 31st March 2009 is at 12.50 times and at 13 times on the upper price band of Rs.90 per share. It is in direct competition with the likes of Kisan Moulding, Precision Pipes, Tulsi Extrusions, which are ruling at lower PE multiples.

This is a typical low margin kind of industry and investor fancy for the same is also poor. Like is the practice nowadays, we may see listing gains but this would have nothing to do with either the fundamentals or the investor fancy for the IPO. Too expensive even at the lower price band.