Track record warrants premium though pre-issue equity dilution restricts capital appreciation.
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OFFER AT A GLANCE |
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Name |
Universal Autofoundry Ltd |
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Public Offer |
Fresh issue of 21.6 lakh shares of Rs 10 each |
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Offer % on Total Equity |
26.63% on Rs 811 lakh |
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Post-IPO Promoter Stake |
58.69% |
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Offer Price |
Rs15 |
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Offer Amount |
Rs 3.24 cr |
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Application Quantity |
8000 & Multiples of 8000 |
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Offer Opens |
August 19, 2015 |
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Offer Closes |
August 21, 2015 |
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Listing |
BSE SME |
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IPO Rating |
Nil |
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Issue Lead Manager |
Hem Securities |
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Market Maker |
Hem Securities |
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Underwriter |
Hem Securities (100%) |
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Registrar |
Karvy Computershare |
The IPO
The present IPO is a fresh issue of 21.6 lakh shares of Rs 10 each at price of Rs 15 a share of which 1.12 lakh shares are reserved for market maker. Half of the public portion (10.24 lakh shares) will be available for allocation to Retail Individual Applicants of up to Rs.2 lakh. The equity capital, which was as low as Rs 1.70 cr at the end of fiscal 2015, was enlarged to Rs 5.95 cr through a bumper 5:2 bonus in July 2015. The IPO, constituting 26.63%, will further increase the equity capital to Rs 8.11 cr.
Investors have to apply for a minimum of 8000 shares (Rs 1.2 lakh). The entire issue is underwritten by the lead manager, Hem Securities, who has also been appointed as `market maker’.
Issue Object
The IPO would fetch Rs 2.89 cr net of issue expenses. The company proposes to invest Rs 2.73 cr on new plant and machinery for expansion of its grey and ductile Iron casting components capacity. The balance Rs 16 lakh is earmarked for general corporate purpose.
Lineage
The genesis of the Jaipur-registered Universal Autofoundry Ltd (UAL) goes back to more than four decades. In September 1971 Kishan Lal Gupta and Vimal Chand Jain formed a partnership firm in the name and style of Universal Foundry and registered the firm in April 1972. The partners incorporated Universal Autofoundry Pvt Ltd in October 2009 upon conversion of the partnership firm. UAL was converted into public company in July 2015. Though the seven partners of Universal Foundry became the original signatories to the Memorandum of Association of UAL, Kishan Lal Gupta (68), chairman and whole-time director who holds 8.63% of post-IPO equity, and Vimal Chand Jain (66), managing director controlling 15.54%, are presented as the main promoters of the company.
Other four signatories to MoA viz. Vinit Jain (5.18%), Urmila Gupta (7.33%), Amit Gupta (10.36%) and Mani Jain (9.49%) along with Vikram Jain (2.16%) are classified as promoter group. One of the initial subscribers to the Memorandum, Payal Gupta who holds a major chunk of 10.36%, is categorized as public along with Preeti Jain (2.16%), Veenu Jain (2.16%) and Ramesh Chand Ghiya (0.0004%).
The promoters of UAL have under their fold AV Casters Pvt Ltd, Jain Autocastings Pvt Ltd, Precision Autocastings Pvt Ltd, KVG High Tech Autocomponents Pvt Ltd, Indian Metal Foundry Institute Pvt Ltd, Unicast and White Window Warehouse LLP who are also engaged in related line of business. In fact, some of these companies do the job work (machining) for UAL.
Business Profile
UAL is engaged in the manufacturing of iron castings primarily for automotive sector. These castings are supplied in machined, semi machined and as cast condition with surface treatment as per customer’s need. Some of the items produced by UAL are suspension brackets, differential housing, hubs, brake drum, flywheels, adjuster nuts, pulleys, dampers, etc. The company’s customers in automotive and engineering industry include Ashok Leyland, V E Commercial Vehicles, Escorts, TAFE, JCB India, AIlena Auto Industries, Rane Automative, etc. The company has a 65,000 sq. ft. manufacturing facility which is rated to produce 7,800 MT castings in a year.
Financial Track
UAL has put up a decent performance in last five years. Even though the top line was static between 2012 and 2014, the overall growth in the five year-period is respectable. More importantly, the company has had net cash generation in all the five years. UAL could achieve this feat even at half of its capacity-production.
However, on the flip side, the company’s operating margin, which was at 11.4% in FY11, has narrowed down to 7.3% in FY15. It was with the help of exchange gain of Rs 94 lakh the company posted a bottom line of Rs 1.91 cr in last fiscal. Also, despite having a small capital base, the company did not pay any dividend. The capital is now shooting up from Rs 1.7 cr to Rs 8.11 cr!
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FINANCIAL TRACK RECORD OF UNIVERSAL AUTOFOUNDRY |
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(Amount in lakh) |
Mar-15 |
Mar-14 |
Mar-13 |
Mar-12 |
Mar-11 |
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Operating Revenue |
5579.28 |
4284.30 |
4289.72 |
4011.29 |
2565.89 |
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Other Income |
144.43 |
41.03 |
26.53 |
17.13 |
12.35 |
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Gross Income |
5723.71 |
4325.33 |
4316.25 |
4028.42 |
2578.24 |
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Operating Margin (%) |
7.3 |
9.0 |
8.4 |
8.7 |
11.4 |
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Interest |
145.74 |
134.41 |
159.03 |
169.71 |
147.20 |
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Depreciation |
147.63 |
103.44 |
116.91 |
131.63 |
147.80 |
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Tax |
68.67 |
36.76 |
7.43 |
19.53 |
3.29 |
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Net Profit |
190.70 |
151.93 |
101.62 |
43.49 |
7.38 |
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Net operating cash flow |
298.04 |
450.88 |
88.38 |
420.95 |
10.56 |
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Equity Capital |
595.00 |
170.00 |
170.00 |
170.00 |
120.00 |
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Reserves |
22.39 |
256.69 |
104.76 |
3.14 |
-40.35 |
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Net Block |
791.26 |
730.26 |
750.93 |
865.47 |
946.11 |
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Total Borrowings |
990.06 |
1035.46 |
1183.57 |
1073.26 |
1316.09 |
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* In July 2015 bonus @5:2 was issued capitalizing Rs 425 lakh out of reserves. |
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Valuation
The promoters of UAL are technically qualified and having experience of over 40 years in the field. The company’s products have found acceptance among some blue chip clients. In the next five years the company plans to gradually increase its capacity utilization to 85% of the existing facility. Further, with the addition of Rs 2.73 cr machinery (out of the IPO proceeds) the company hopes to make more value added products thereby improving the profit margin. All these could easily justify a premium of Rs 5 for UAL’s Rs 10 paid-up share.
UAL also compares well with its peers in the iron casting industry. Even on the enlarged equity, the company’s P/E works out to only 6.4 times and its market cap is just one-fifth of its revenue which leaves enough scope for appreciation. Perhaps, one factor that may upset the investors’ calculation is the abysmally low cost of holding of the existing shareholders. The actual cost of the current equity capital (Rs 5.95 cr) is only Rs 1.7 cr or Rs 2.86 per share. Thus, once the lock-in period is over, the counter may witness selling pressure, especially from the existing public shareholders.
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HOW UNIVERSAL AUTOFOUNDRY COMPARES WITH PEERS |
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AUTO IRON |
M-CAP |
EQ |
NP |
P/E |
P/R |
OPM |
YLD |
PRICE |
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CASTING COs |
(Rs Cr) |
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(x) |
(%) |
(Rs) |
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Nelcast |
501 |
17.40 |
21.94 |
22.8 |
0.9 |
8.3 |
1.2 |
58 |
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Magna Electro |
52 |
4.58 |
5.43 |
9.5 |
0.5 |
14.0 |
1.6 |
113 |
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Universal Auto |
12 |
8.11 |
1.91 |
6.4 |
0.2 |
7.3 |
0.0 |
15 |
Lead Manager’s Track
The IPO of UAL will be the 15th SME managed by Hem Securities. In fact, Hem has introduced the highest number of IPOs on the SME Platform of BSE. In terms of market performance, Hem-associated IPO have done reasonably well. Of the 13 IPOs already listed, only two are currently quoting below the offer price. However, the problem with Hem’s IPOs is liquidity. Many of its IPOs do not find regular quotes.
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HEM SECURITIES-MANAGED SME LISTINGS |
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CO_NAME |
IPO |
LAST TRADED |
GAIN |
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DATE |
PRICE |
DATE |
PRICE |
% |
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SAMRUDDHI REALTY |
28-Mar-13 |
12 |
14-Aug-15 |
32.50 |
171 |
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CAPTAIN POLYPLAST |
26-Nov-13 |
30 |
18-Aug-15 |
48.50 |
62 |
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TENTIWAL WIRE |
11-Dec-13 |
13 |
13-Aug-15 |
7.96 |
-39 |
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R&B DENIMS |
28-Mar-14 |
10 |
2-Jun-15 |
10.50 |
5 |
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BANSAL ROOFING |
26-Jun-14 |
30 |
17-Aug-15 |
31.50 |
5 |
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ATISHAY INFOTECH |
25-Sep-14 |
16 |
17-Aug-15 |
45.00 |
181 |
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DHABRIYA POLYWOOD |
29-Sep-14 |
15 |
17-Aug-15 |
44.50 |
197 |
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VIBRANT GLOBAL CAP |
29-Sep-14 |
19 |
13-Aug-15 |
22.75 |
20 |
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ADCC INFOCAD |
30-Sep-14 |
40 |
14-Aug-15 |
69.00 |
73 |
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CAPTAIN PIPES |
26-Nov-14 |
40 |
18-Aug-15 |
34.50 |
-14 |
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O.P. CHAINS |
30-Mar-15 |
11 |
5-Aug-15 |
15.35 |
40 |
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JUNCTION FABRICS |
25-Jun-15 |
16 |
17-Aug-15 |
17.75 |
11 |
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LOYAL EQUIPMENTS |
3-Jul-15 |
18 |
17-Aug-15 |
18.00 |
0 |
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Emkay Taps |
27-Jul-15 |
330 |
Yet to be listed |
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