Thursday, December 23, 2010

IPO ANALYSIS: SHEKHAWATI POLY-YARN LIMITED – WEAK THREADS - AVOID







Mumbai based polyester yarn manufacturer is entering the capital market with an IPO. The company intends to mobilize Rs 36cr, by issue of 1.20cr shares of Rs10 FV, at a fixed premium of Rs 20 per share. Hem Securities are the lead manager to the issue. The issue opens on 27-12-10  and closes on  29-12-10.

The promoters of the company are Mukesh Ruia and Mr. Ramniranjan Ruia.


BUSINESS:


Shekhawati Poly-Yarn has been in the Polyester Industry for more than a decade and has been engaged exclusively in the manufacture of Polyester Texturised Yarn (PTY). This material is used in the process of weaving of fabric used for suiting, shirting, dress materials, saris, hosiery, knitted fabric, zipper fastener, curtain & industrial cloth as also to manufacture fancy yarn for high value dress materials and upholstery. At present, the company has 20 Texturising Machines with an installed capacity of 13,200 MTPA to produce PTY. The company has also installed 5 Twisting machines to produce Twisted Yarn with installed capacity of 600 MTPA.



OBJECTS OF THE ISSUE

The Company proposes to establish manufacturing facility for Knitted Fabrics.

Particulars
Amount in lacs

Factory land & building

  700.00
Corporate office
  325.00
Twisting / Knitting machines
1725.00
Working capital
  550.00
Others
  300.00

TOTAL

3600.00










FINANCIALS:
RS IN CRORES

 09
10
30-09-10
 TOTAL INCOME
77.51
89.51
 59.96
 PAT
  1.25
 2.20
   1.58

MATTERS OF COCENCERN

The company has very poor corporate governance. The company has not followed proper accounting standard with respect to employees’ benefits and has not registered itself with the concerned government’s depts. for professional taxes, ESI etc.  The company also does not have a full time company secretary.

The project is fully equity funded without promoters’ contribution.

CARE has awarded IPO grade 2, indicating below average fundamentals.

No firm tie-up for raw materials. The company is yet place order for plant & Machineries.

There is clash of business interest among the promoter group.

The company operates in highly competitive industry, where the prices of products are dictated by big players.


VALUATION AND RECOMMENDATIONS

The company’s expansion project has not been appraised by any Bank or Financial Institution. Small time player in polyester yarn business. The company faces high competition both from domestic as well as international players. The net profit margins are very thin. Shares of companies in this segment are not fancied in the exchanges. Century Enka, one of the oldest players in the industry is available around 5 PE. At Rs 30, the company is demanding a valuation of 20x on its FY 11 earnings, on the post issue capital of Rs 22cr, which is expensive.
Poor quality IPO from Hem Securities (their maiden IPO). Stay away from the issue. The issue is not worth subscribing even at face value. AVOID.


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