Niraj Cement Structurals: Weak foundations

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.

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.