Aster Silicates is entering the capital market on 24th June 2010 to raise Rs. 53.1 crores, with a fresh issue of equity shares of Rs.10 each, in a price band of Rs.112 to Rs.118 per share. The company will issue 45 to 47 lakh fresh equity shares, depending on the price discovered via the public issue, which closes on 28th June 2010.
The company, manufacturing sodium silicate primarily used by the FMCG, tyre and pesticides industry, operates two manufacturing units in Gujarat, with a combined capacity of 150 MT of glass per day (MTPD). It operates in a very competitive and fragmented industry in Gujarat.
The objects of the issue include tripling of manufacturing capacity to 450 MTPD, with investment of Rs. 44.3 crores and meeting working capital needs of Rs. 7.5 crores. For FY11, the company has estimated working capital requirement of Rs. 26.5 crores. Rs. 7.5 crores will be met through issue proceeds and balance Rs. 19 crores will be borrowed / arranged by the company, for which no arrangements have yet been finalised.
The company is heavily dependent on very few customers as well as suppliers. For FY10, top 5 customers accounted for over 83% of its turnover, whereas, its purchases were concentrated among just 3 suppliers, which supplied a whopping 97% of the company’s total purchases for that year. This only signifies a very low bargaining power in the hands of the company, both as a buyer and seller, which may be a concern post-expansion. Moreover, it does not have any long term supply agreement with its customers.
Coming on to its financial performance, the company reported sales of Rs. 62 crores for FY10 and a PAT of Rs. 4.4 crores. On an equity of Rs. 10.36 crores, FY10 EPS was Rs. 5.1 and networth, as on 31st March 2010, was Rs. 20.3 crores, resulting in a book value per share of Rs. 23.5. Outstanding debt, as on 31st March 2010, was Rs. 14.5 crores. Over the years, its debtors turnover ratio has been falling, from 8.8 in FY08 to 3.6 in FY10, indicating softer credit period given to customers by the company.
At the lower end of the price band at 112, the PE multiple works out to 22 times and PBV 4.8 times. There are no listed companies engaged purely in sodium silicate business, but such chemical companies deserve a PE of not more than 5. To us, the share justifies a price of not more than Rs. 35!
The issue is grossly over-priced and does not deserve an enterprise value (market capital plus debt minus cash) of Rs. 183 crores, post-listing. The issue is a clear avoid.
Friday, June 25, 2010
Aster Silicates: Dont be Silly
Grey Market Premium Dt. 25-6-2010
Grey Market Premium Dt. 25-6-2010
| Company Name | Offer Price (Rs.) | Premium (Rs.) | Kostak (Rs. 1 Lac Application) |
| Parabolic Drugs Ltd. | 75 to 85 | Discount | -- |
| Aster Silicates Ltd. | 112 to 118 | 2 to 2.50 | 1400 to 1450 |
| Technofab Engineering | 230 to 240 | 8 to 9 | 1600 to 1700 |
| Note: Dont subscribe for issue by just seeing premium Price as it may change anytime before listing. Subscribe only considering Fundamental of the companies |
Sunday, June 13, 2010
Parabolic Drugs: Avoid this medicine
Parabolic Drugs, is entering the capital markets on 14th June 2010, to raise Rs. 200 crores, by fresh issue of equity shares and offer for sale of 20.26 lakh equity shares, in the price band of Rs. 75 to 85 per share. For the first time, an issue will have different closing dates; 16th June for QIBs and 17th June for the retail and HNI category.
Based on the price discovered, there will be a fresh issue of 2.15 - 2.46 crore equity shares of Rs. 10 each, enabling the company to raise Rs. 183 - 185 crore. Fresh issue will result in 37%-40% dilution on the expanded equity. The offer for sale by two private equity (PE) investors is a mere 8% of the total issue size.
The company, manufacturing active pharmaceutical ingredients (APIs) and providing contract research and manufacturing services (CRAMS), plans to establish new facilities for widening the product portfolio and undertake R&D activities, besides repayment of loans and general corporate purposes, through the IPO proceeds.
In the balance sheet, as on 31st December 2009, there is no capital work-in-progress nor have any funds been deployed towards the object of the issue, till 31st March 2010. All funds will be deployed in FY11 and FY12, benefits of which will accrue only from FY12 onwards.
The consolidated balance sheet, as on 31st December 2009, shows huge debts (secured and unsecured) of Rs.367 crores, on networth of Rs.112 crores, resulting in a debt to equity ratio of 3.3. Through the IPO proceeds, the company will make part pre-payment of the secured loans to the extent of Rs.38.8 crores. However, balance Rs.264.3 crores of secured loans will be subject to interest rate risks, as they are linked to floating rates of interest. One wonders, if the company is compelled to take the IPO route, to fund its expansion, since it is constrained to further leverage its balance sheet?
For 9 months ended 31st December 2009, the company reported sales of Rs.346 crores and EBITDA of Rs.62 crores and PAT of Rs.21.4 crores. Annualised EPS for FY10 is estimated at Rs.7.75 per share, resulting in P/E multiple of 9.7 times on lower end and 11 times on the higher end of the price band. Companies in the same sector like Nectar Life and Dishman, which are also bigger in size and having better margins, are presently ruling at PE multiples of 8 to 12 times. Thus the IPO does not leave much on the table (read listing gains) for retail investors. Even the price-to-book ratio of 2.5 to 2.8 times is quite high.
During financial year ended 31st March 2009 and 9 months ended 31st December 2009, the company incurred forex losses to the tune of Rs.4.7 crores and Rs.5.6 crores respectively, due to uncovered positions in the foreign exchange market.
The inventory, as on 31st December 2009, was Rs.230 crores, representing 6 months of sales. Likewise, the debtors of Rs.157 crores, as on that day, represent over 4 months of sales. This shows that the company has not been utilizing its current assets efficiently.
In January 2010, the company had placed 4 lakh equity shares of Rs.10 each with Kyodo International, Japan at Rs.100 per share, as part of marketing strategy for new geography. This placement, though made at a higher price, is very tiny and not material.
Better companies are available at attractive valuations in the secondary market. Also, off late, investors have got disenchanted with the primary market offerings and hence under the circumstances, best to give this issue a complete miss!
Tuesday, June 8, 2010
Grey Market Premium Dt. 8-6-2010
Latest Grey Market Premium Dt. 8-6-2010
| Company Name | Offer Price (Rs.) | Premium (Rs.) | Kostak (Rs. 1 Lac Application) |
| Standard Chartered PLC | 104 | Discount | -- |
| Fatpipe Networks India Ltd. | 82 to 85 | 2 to 3 | 1500 to 1700 |
| Note: Dont subscribe for issue by just seeing premium Price as it may change anytime before listing. Subscribe only considering Fundamental of the companies |
Sunday, June 6, 2010
Fatpipe Networks: Fatchance Profits
Fatpipe Networks India is entering the capital market from 7th June 2010 to 9th June 2010, to raise Rs. 49 crores, with a fresh issue of equity shares of Rs.10 each, in a price band of Rs.82 to Rs.85 per share. The company will issue 58 to 60 lakh fresh equity shares, depending on the price discovered via the public issue.
The company provides router clustering products for Wide Area Networks (WAN), which are assembled and marketed primarily in US. It is looking to expand its markets to Europe, China, India, Africa and Middle East.
The objects of the issue looks very structured – of the Rs. 49 crores planned to be raised, Rs. 15 crores is to be used for strategic acquisitions. However, the company is yet to identify the companies / businesses to be taken over. Another Rs. 7.2 crores is to be used towards working capital, despite the cash and bank balance of Rs. 5.02 crores, appearing on its books, as on 31st December 2009.
Moreover, Rs. 6.8 crores and Rs. 10.1 crores is to be used for product R&D and setting-up of 16 marketing offices across the globe, respectively. The full benefits of these will not accrue during FY11 and will get reflected only in FY12 results and onwards. Hence, FY11 will have expanded equity base, but will not be EPS accretive.
The company’s IPO has been graded a “2” implying below average fundamentals. For 9 months ended 31st December 2009, it earned revenue of Rs. 45.9 crores and net profit of Rs. 5.2 crores. EPS for 9 months was at Rs. 4 per share and full year EPS is expected to be Rs. 5.50 per share. At the lower end of the price band of 82, PE multiple works out to 15 times. Similar companies in manufacturing IT networking equipments are presently ruling at PE of around 6 to8 times. The company does not have any scale or better margins to deserve this premium.
As on 31st December 2009, receivables stood at Rs. 13.6 crores, implying a debtors turnover ratio of just 4.5 times. Its networth as on that day was Rs. 35.9 crores, and with 1.3 crores outstanding shares of Rs. 10 each, the resulting book value per share is Rs. 27.6. The only silver lining in its financials is its debt free status.
The company has over 120 employees, of which 50% are in sales and marketing, and its staff costs for 9 months ended 31st December 2009 was Rs. 12.5 crores i.e. annual wage bill of Rs. 17 crores or Rs. 14 lakhs per employee – a hardware company paying 28% of its sales as salaries is unheard of! Not to mention the fat pay-check of Rs. 1 crore each, that the two Promoter Directors of the company, draw annually.
Likewise, the company incurred selling and marketing expenses of Rs. 15.8 crores for 9 months ended 31st December 2009, which is equivalent to 34% of its sales for the period. Means, the company spends 34 paisa in a rupee, just on selling and marketing its ‘patented product’!
The company also has some operation and regulatory hurdles before it. RBI regulations, restricting the quantum of funds that can be remitted by the company to its US branch office, may act as an impediment to the company’s future workings.
On the intellectual property and potential competition front, it has 7 product patents, which are only in the US. It does not have any patents or trademarks in India or any other geography, where it is looking to expand its business, to 40% of sales, over the next 3 years. This looks to be a structured IPO, just to raise funds. The fundamentals do not justify valuation of Rs. 155 crores. It is a clear avoid.