The Hyderabad based telecom tower manufacturer** is entering the capital market with an IPO. The company intends to raise Rs 200cr, by issuing 76, 79,410 equity shares of Rs 10 each, at a premium. The issue opens on 06-10-10 and closes on 8-10-10. HSBC Invest Direct Securities (formerly IL&FS Investsmart) are the BRLM.
BACK GROUND AND BUSINESS:
The promoters of the company are Rajesh Agrawal, Rakesh Agarwal and Mukesh Agarwal.
The Company was incorporated in the year 2004 as a private limited company under the name of B.S. Steels and Minerals Private Limited with a primary objective of trading in steel products required by tower manufacturers.
Pursuant to the scheme of amalgamation, Integrated Steel Products Private Limited was merged with BS Steels and Minerals Private Limited, with effect from April 1, 2006. The manufacturing unit (at Medchal, Andhra Pradesh) was transferred to BS Steels and Minerals Private Limited along with its assets and liabilities. The name of BS Steels and Minerals Private Limited was changed to BS TransComm Private Limited in January 2008.
B S Transcomm Limited ( BTL) diversified into tower manufacturing activity in the year 2007 with an installed capacity of 36,000 Metric Tonne Per Annum (MTPA). Subsequently the company also started providing turnkey solutions. Within a short span of three years the company has been able to significantly expand its footprint in both tower manufacturing and services. However, the company still lacks the pre-qualification criteria to bid for transmission tower projects on a standalone basis, mainly because of its limited experience in providing turnkey solutions. As a result, the company has to largely depend upon its various joint venture partners for bidding for such projects. In the tower manufacturing segment of its operations, the company has recently expanded its capacity from 36,000 MTPA to 1,20,000 MTPA.
The **tower manufacturing activities include designing and fabrication of telecommunication and power transmission towers. The Company’s clients include Reliance Infratel, Vodafone, Idea Cellular, Limited, Wireless - TT Info Services. Essar Telecom Infrastructure, Indus Towers, APTransco and Huawei Telecommunications.
BTL has pan India presence in 19 out of the 23-telecom circles.
FINANCIALS:
(Rs in crores)
08
09
10
TOTAL INCOME
437.61
337.26
540.15
NPAT
13.88
12.37
23.71
EPS
10.16
8.72
16.65
OBJECTS OF THE ISSUE:
For Setting up of manufacturing facilities of telecommunication and power transmission towers under Phase I and Phase II in Andhra Pradesh having an installed capacity of 84,000 MTA and 120,000 MTA respectively. (ICRA Report says this is already completed)
Setting up rolling mill plant having an installed capacity of 90,000 MTA.
To part finance margin money for working capital.
To fund general corporate purposes.
MATTERS OF CONCERN:
IPO grading 2/5 by ICRA.
The company has limited track record in its core activities (including tower manufacturing, turnkey solutions and O&M services).
High market risk associated with expansion plans, particularly given the high competitive intensity of the business. Industry dominated by large established players. The company’s capability to sustain current level of growth and return on investments remains to be seen.
Profitability could be vulnerable to steel price fluctuation risk.
The company witnessed stretched liquidity position, as indicated by instances of LC devolvement and delays in debt servicing in the recent past. High working capital intensive business.
VALUATION AND RECOMMENDATIONS:
The company filed DRHP with SEBI in Sept 2008, hitting the market, after two years. The objects of the issue remain the same. It appears nothing much has changed in the two years, in between. As of March 2010, the company has Rs 226.75cr debt, which is 2.75 times the total net worth. As per ICRA report, the company has experienced liquidity problems in the recent past. The company has significant debt repayment obligation in the medium term. May be, one of the hidden object is for repayment of debts, to improve the liquidity of the company. The debtors’ realization has gone up from 125 days in 2009 to 169 days in 2010.
In the price band of Rs 257 - 266, the issue irrationally priced, considering its past performance and future prospects. IPO grade 2 by ICRA.
At the Cap Price, the company is demanding a PE multiple of around 34, on its FY 10 earnings, (0n the post issue expanded capital base of 21.88cr) where as the shares of peers in the industry like Jyothi Structure (12PE), KEC Intl(16PE), Sujana Towers (12PE) are available at cheaper valuation. Even on the RONW front, the company’s performance is lackluster compared to the above peers. There is no justification for such high valuation.
Zerodha (Trading & Demat Account)
RHP
