Exxaro Tiles IPO review (May apply)

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Review By Dilip Davda on July 31, 2021

•    ETL is engaged in the manufacturing and marketing of vitrified tiles.
•    It operates in a highly competitive field with fragmented players.
•    Based on super earnings of FY21, the issue is fully priced.
•    Due to listing in T2T with limited circuit levels, a speculative move is unlikely.
•    Cash surplus/risk seekers may consider an investment.

PREFACE:
There are four mainboard IPOs opening on the same date i.e. August 04, 2021, and this being the smallest one and a T2T listing cadet, speculative move may get restricted. When investors have a very wide choice of selection and have limited funds, this IPO will not find a place in their preferential options. To create fancy and lure investors for this IPO, vested interests have already started moves in the grey market (which is totally unofficial and un-regulated segment). Investors must remember that the grey market is not an indication or a parameter for considering an investment in an IPO.

ABOUT COMPANY:
Exxaro Tiles Ltd. (ETL) is engaged in the manufacturing and marketing of vitrified tiles used for flooring solutions. Having started its operation in the manufacturing of frits, over the years it diversified and expanded to its current status. It manufactures broadly two products i.e. double charge vitrified tiles and glazed vitrified tiles.

Its product basket has 1000+ designs and it is sold under its own brand 'Exxaro'. As of the date of filing its RHP, it had 2000+ registered dealers across 24 states/union territories with PAN India presence. It is also exporting its products to over 12 countries internationally.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans for repayment/prepayment of certain borrowings (Rs. 50.00 cr.), working capital funding (Rs. 45.00 cr.) and general corpus needs, ETL is coming out with a maiden IPO via book building issue to mobilize Rs. 161.09 cr. (at the upper cap). The company will be issuing 11186000 fresh equity shares (Rs. 134.23 cr. at the upper cap) as well as an offer for sale of 2238000 equity shares of Rs. 10 each (Rs. 26.86 cr. at the upper cap). Thus overall it will be issuing 13424000 equity shares. ETL has fixed a price band of Rs. 118 - Rs. 120 per share. Minimum application is to be made for 125 shares and in multiples thereon, thereafter.

The issue opens for subscription on August 04, 2021, and will close on August 06, 2021. Post allotment, shares will be listed on BSE and NSE. ETL has reserved 268500 equity shares for its eligible employees and from the residual portion, it has allocated 25% for QIBs, 35% for HNIs and 40% for retail investors. Allocation of the IPO has surprised one and all for the mainboard IPO. The issue constitutes 30% of the post issue paid-up capital of the company.

The issue is solely lead managed by Pantomath Capital Advisors Pvt. Ltd. and Link Intime India Pvt. Ltd. is the registrar to the issue.

Having issued initial equity at par, the company raised further equity in the price range of Rs. 15 to Rs. 110 per share between August 2008 and March 2018. The average cost of acquisition of shares by the promoters/selling stakeholder is Rs. 4.69, Rs. 7.54, Rs. 14.88, Rs. 23.95 / Rs. 5.49 per share.

Post issue, company's current paid-up equity capital of Rs. 33.56 cr. (33555070 shares) will stand enhanced to Rs. 44.74 cr. (44741070 shares). Based on the upper price band of the IPO, ETL is looking for a market cap of Rs. 536.89 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, ETL has posted turnover/net profits of Rs. 221.25 cr. / Rs. 9.14 cr. (FY18), Rs. 244.01 cr. / Rs. 8.92 cr. (FY19), Rs. 243.96 cr. / Rs. 11.26 cr. (FY20) and Rs. 259.85 cr. / Rs. 15.22 cr. (FY21). Boost in the top and bottom lines in the pre-IPO year (under pandemic scare) raises concern.

For the last three fiscals, the company has posted an average EPS of Rs. 3.83 and an average RoNW of 10.73%. The issue is priced at a P/BV of 3.14 based on its NAV of Rs. 38.20 as of March 31, 2021, and at a P/BV of 2.05 based on its post-issue NAV of Rs. 58.65 (at the upper cap).

If we attribute FY21 super earnings on fully diluted post issue equity, then the asking price is at a P/E of 35.29 making it a fully priced issue. The sustainability of FY21 margins is a major concern. Based on its FY 20 earnings, the issue is priced at a P/E of 47.62.

COMPARISON WITH LISTED PEERS:
As per the offer documents, ETL has shown Kajaria Ceramics, Asian Granito, Somany Ceramics, Orient Bell and Murudeshwar Ceramics as its listed peers. They are currently trading at a P/E of around 52.43, 12.23, 43.73, 39.32 and 00 (as of July 30, 2021). However, they are not truly comparable on an apple to apple basis.

DIVIDEND POLICY:
ETL has not declared any dividend for the last five fiscals. It will follow a prudent dividend policy post IPO based on its earnings and future prospects.

MERCHANT BANKER'S TRACK RECORD:
This is the 47th mandate from Pantomath Capital in the last three fiscals (including the ongoing one). Out of the last 10 listings, 1 opened at discount, 1 at par and the rest with a premium ranging from 2.11% to 19.23% on the day of listing.

However, as per the IPO ad disclaimer, this Lead Manager has handled 30 public issues in the past three years out of which 5 closed below the offer price on the listing date.

Exxaro Tiles IPO FAQs