Promoters’ knowledge, experience and established brand make it acceptable grade though wafer-thin margins, large equity base, huge working capital, poor industry sentiment, etc. cast shadow……
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OFFER AT A GLANCE |
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Name |
M.D. Inducto Cast Ltd |
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Offer Amount |
Rs 17.24 cr |
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Offer Quantity |
63.84 lakh shares of Rs 10 each |
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Offer on Total Equity |
26.5% |
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Post-issue Promo stake |
73.5% |
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Post-IPO Capital |
Rs 24.09 cr |
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Offer Price |
Rs 27 |
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Application Quantity |
4000 & Multiples of 4000 |
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Offer Opens |
June 30, 2015 |
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Offer Closes |
July 2, 2015 |
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Listing |
SME Platform of BSE |
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Rating |
Nil |
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Lead Manager |
Pantomath Capital |
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Market Maker |
BCB Brokerage |
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Underwriter |
Pantomath Capital (100%) |
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Registrar |
Karvy Computershare |
The Offer
Fresh Issue of 63,84,000 equity shares of face value of Rs 10 at a price of Rs 27 each aggregating to Rs 17.24 cr. The IPO will constitute 26.5% of the post-issue paid up equity capital of the company. Of the public offer 3,24,000 shares are reserved for the `Market Maker’ to the issue, BCB Brokerage. The lead manager to the issue, Pantomath Capital Advisors, has underwritten the entire issue. Investors have to apply for a minimum of 4000 shares or Rs 1,08,000. The shares are to be listed on the SME platform of BSE.
Issue Object
The entire proceed of the IPO (net of issue expenses Rs 65 lakh) amounting Rs 16.59 cr is to be utilized for working capital. Through the IPO the company also hopes to achieve the benefits of listing on the stock exchange.
Lineage
The issuer, M D Inducto Cast Ltd (MDICL), is a part of the Bhavnagar-based Rs 600 cr MD group promoted by Ashokkumar Gupta (57). The group began its journey in 1991 with a steel re-rolling mill having a modest annual capacity of 12000 MT. Today, the group’s activity includes ship breaking/recycling, oxygen plant, induction furnace besides steel-rolling. MD group claims to have an asset base of Rs 120 cr on a net worth of Rs 75 cr.
The IPO maker MDICL is relatively a new company incorporated in 2010 for the manufacture of TMT bars and billets. The company is managed by Nikhil Gupta (30), son of Ashokkumar Gupta. MDICL has set up a fully integrated steel plant with 20 MT Induction Furnace, 6/11 Continuous Casting Machine and fully automatic new age Rolling Mill. The company has a capacity to produce 1.2 lakh of billets or TMT bars. It sells TMT bars under the brand Rudra TMX.
In addition to manufacturing of its own products, MDICL has recently introduced franchisee model into its operations. The company has already contracted with five parties who manufacture and sell goods under the brand name Rudra TMX. For this, MDICL will receive royalty. Currently, the company has about 25 direct dealers and five distributors who cater to around 450 dealers.
Financial Performance
Though relatively a new company, MDICL has carved a niche for itself in the steel industry which is reflected in its growth in last two years. From Rs 44 cr in FY13, the company’s sales net of excise have grown nearly 8 times, to over Rs 330 cr in FY15. The company’s net profit has increased from Rs 83 lakh to Rs 5.74 cr during this period. MDICL claims to have already reached capacity utilization of 85% and is contemplating to enhance its capacity further.
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FINANCIAL TRACK OF M.D. INDUCTO CAST |
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(Rs.Lakh) |
Mar-15 |
Mar-14 |
Mar-13 |
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Net Revenue |
33176 |
31714 |
4366 |
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Other Income |
156 |
90 |
1 |
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Total Revenue |
33332 |
31804 |
4367 |
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Operating Profit |
1980 |
1217 |
182 |
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Operating Margin % |
4.9 |
3.2 |
3.7 |
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Finance Cost |
745 |
450 |
53 |
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Depreciation |
427 |
106 |
12 |
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Tax |
234 |
228 |
33 |
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Net Profit |
574 |
432 |
83 |
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Net Operating Cash-flow |
3013 |
745 |
-1194 |
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Networth |
1489 |
915 |
383 |
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Equity Cap |
400 |
400 |
300 |
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Net Block |
3744 |
2637 |
1785 |
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Total Borrowings |
3853 |
3802 |
2966 |
Valuation & Perception
At the end of March 2015, MDICL had an equity capital of Rs 4 cr and reserves of around Rs 10 cr. In May 2015, the company made a bumper bonus issue of 5:2 thereby capitalizing Rs 10 cr. This brought down the promoters’ average cost of holding to less than Rs 3 per share. Post-bonus the company issued 37 lakh shares at the IPO price of Rs 27 to promoter-family. Thus, Nikhil Gupta holds 22.06 lakh shares at Rs 12.62 a piece while his brother, Sahil Gupta’s 55.39 lakh shares’ average cost being just Rs 2.86 a share.
How does one justify a price of Rs 27 for MDICL? Currently, TMT bar is one of the poorly discounted segments on the trading screen which is largely attributed to the industry’s weak financials in recent quarters. Large players like Tulsyan NEC are into losses. The previous TMT bar IPO, Aanchal Ispat, floated on the SME platform few months ago at Rs 20 a share is currently languishing below par value (Rs 8.65). The industry’s current margins are pathetic, at less than 5%. Existing players are having m-cap of just 0.1 times of their sales. Considering these, MDICL can hardly expect support at Rs 27 on the trading screen.
While admitting the poor sentiment for the steel industry at present, MDICL’s promoters promise that their company’s profitability will have a qualitative change in a couple of years when they earn more royalty income. Their knowledge and experience may perhaps help them to achieve their goal. Nevertheless, investors will have to wait at least three years to reap the benefit.
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HOW M D INDUCTO CAST COMPARES WITH INDUSTRY PEERS |
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COM_NAME |
M-CAP |
EQ |
RES |
REVEN |
P/E |
P/BV |
P/R |
OPM |
YLD |
PRICE |
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(Rs Cr) |
(x) |
(%) |
(Rs) |
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Kamdhenu Ispat |
90 |
23 |
76 |
968 |
11.2 |
0.9 |
0.1 |
3.1 |
1.8 |
38.5 |
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Tulsyan Nec |
19 |
15 |
123 |
1,285 |
– |
0.1 |
0.0 |
4.6 |
0.0 |
12.60 |
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Aanchal Ispat |
18 |
21 |
18 |
191 |
24.1 |
0.5 |
0.1 |
2.8 |
0.0 |
8.65 |
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Rathi Bars |
10 |
16 |
55 |
287 |
2.8 |
0.1 |
0.0 |
3.3 |
0.0 |
6.20 |
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M D INDUCTO |
65 |
24 |
7 |
332 |
11.3 |
2.1 |
0.2 |
4.9 |
0.0 |
27.00 |
Manager’s Track
MDICL is the tenth SME IPO handled by the Mumbai-based investment banker Pantomath. In fact, Pantomath is the most active issue manager in the month of June 2015. In a matter of eight days, from 23rd June to 30th June, it has brought out four IPOs. On 30th June alone, two IPOs managed by Pantomath are making debut. One is MDICL and the other is Majestic Research Services and Solutions making a small IPO of Rs 1.43 cr. For a change, unlike many other SMEs listed on the BSE, the present lot managed by Pantomath seems to have acceptable quality.
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PANTOMATH CAPITAL LEAD-MANAGED IPOs |
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SME IPO |
IPO |
LISTING |
DAYS |
DAYS |
TRADING |
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DATE |
PERIOD |
LISTED |
TRADED |
DAYS % |
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SIDDHI VINAYAK SHIP |
18-Feb-14 |
16 |
319 |
56 |
18 |
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WOMEN’S NEXT |
28-Mar-14 |
24 |
291 |
144 |
49 |
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ULTRACAB |
15-Sep-14 |
25 |
175 |
89 |
51 |
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MOMAI APPARELS |
25-Sep-14 |
21 |
172 |
171 |
99 |
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JET INFRAVENTURE |
30-Oct-14 |
26 |
147 |
58 |
39 |
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SUPREME (INDIA) |
16-Mar-15 |
15 |
60 |
53 |
88 |
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FILTRA CONSULTANTS |
24-Mar-15 |
22 |
52 |
19 |
37 |
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COMPOSITE |
|
21 |
1216 |
590 |
49 |