IPO ANALYSIS: BEDMUTHA INDUSTRIES LIMITED
BEDMUTHA INDUSTRIES LIMITED: EXPENSIVE – AVOID
The Nashik based steel wire manufacturer – Bedmutha Industries Limited, is entering the capital market on 28-09-10, with issue of 90,00,000 equity shares of Rs 10 FV, in the price band of Rs 95-102. The issue closes on 1-10-10. Keynote Corporate Services and Ashika Capital Limited are the BRLMs.
BACK GROUND AND BUSINESS:
Kachardas R. Bedmutha is the founder of Bedmutha Industries Limited (formerly known as Bedmutha Wire Company Limited). He has more than thirty years experience in the business. The Company started its commercial production in the year 1992, by setting up first Galvanized Wire plant at Nashik with an installed capacity of 3600 MTPA.
The company has an established track record of about two decades in the wire manufacturing business. Over the past years, the company has significantly increased the capacities of its wire drawing and galvanizing units, which has led to healthy growth in production levels. The galvanizing unit witnessed 25% growth in production in FY 2010 as compared to the previous year and further growth would be aided by addition of new galvanizing line in March 2010 that has increased the galvanizing capacity from 25,300 MTPA to 33,500 MTPA.
The Company’s products find usage in infra, automobile, engineering and defence, among others.
The company has a subsidiary- Kamalasha Infrastructure & Engineering Private Limited, for undertaking turnkey contracts for infrastructure namely in power, roads, railways etc.
The company has also invested 49% in Ashoka Pre-con Private Limited along with Ashoka Buildcon Limited, (IPO for this company opens on 24-09-10) to manufacture pre stress concrete products such as cement poles, RCC pipes, Cement Piles, railway sleepers.
OBJECTS OF THE ISSUE:
For Setting up of a new plant at Sinnar, Nashik for manufacturing of Low Relaxation Pre-Stress Concrete (LRPC) Wire and Spring Steel Wire ( Rs 85.00cr) and General Corporate Purposes (Rs 6.80cr).
FINANCIALS: RS IN CRORES
08 09 10
TOTAL INCOME 115.63 151.66 177.95
NPAT 3.92 7.02 12.18
EPS 3.27 5.86 10.14
RONW (%) 31 38 46
RISKS:
IPO grade 2 by ICRA, indicating below average fundamentals.
The company faces competition from large sized players in the industry, having wider product portfolio such as Tata Steel Ltd., Usha Martin Ltd. and Ramsarup Industries Ltd. Further, the company also faces competition from number of smaller units in wire drawing business, though the company’s emphasis on quality mitigates the competitive pressures to some extent.
The project has not been appraised by any external agency.
Although ,the demand outlook for both LRPC and Spring Steel Wires is favorable, the company’s ability to implement the project in a timely manner and ensure market acceptance for the products would be critical for generating returns on the investment planned.
VALUATION AND RECOMMENDATIONS:
At Rs 95-102, the issue is priced around 17 times its FY 10 earnings, on post issue capital of Rs 21.02cr. This is expensive compared to the listed peers in the segment like Good Luck Teel Tubes (3.5PE) and Ramsaup Industries (9PE).
While the IPO should enable the company to scale up its revenues, the actual return indicators may decline given the large size of expansion, the significant equity dilution and uncertainty on the company’s ability to get market acceptance for its new product offerings.
The offer is expensive. AVOID.
Zerodha (Trading Account)
RHP
Top Contributor (500+ Posts, 200+ Likes)
