SPA Securities has come out with report on Burnpur Cement IPO. The firm has advised to ignore the issue.
Burnpur Cement (BCL), one of the established cement manufacturers of Eastern India, is open for subscription with its initial public offer of 2,19,00,000 equity shares of Rs 10 each for cash at a premium of Rs 2 per share. The issue will close on December, 3, 2007.
SPA Securities report on Burnpur Cement IPO
Investment Highlights
BCL has grown at a CAGR of 41% in the topline; 94% at EBIDTA level & 96% in the bottomline in the last three years.
Investment rationale: Company is setting up an integrated clinkerisation and cement grinding plant of 800 TPD expandable to 1600 TPD in Hazaribagh, Jharkhand. BCL’s has focused on under developed areas of Eastern India. BCL has the locational advantage & government subsidies. Company has entered into a MOU with the government of Jharkhand, whereby the government will extend the assistance for promotion and establishment of the proposed project of the company. The company has a wide distribution network in Eastern India.
Concerns are: Limestone for clinker shall be obtained from JSMDC for which mining agreement is yet to be entered. Low capacity utilization. Non-availability of clinker and bottlenecks in the production process. Low installed capacity does not have any economies of scale. High debt post expansion and huge equity base would be EPS dilutive.
For the quarter June 2007, the company recorded a topline of Rs 7.27 crore., operating profit of Rs 1.04 crore. & a PAT of Rs 0.36 crore. translating to EPS of Rs 1.28 (annualized) & RoNW of 9.24%
Valuation: The stock is currently available at a P/E of 45x of its Post-issue EPS of Rs 0.27, which is expensive vis-à-vis its peers. On EV/EBIDTA, it is valued at 19x which too is very expensive when compare to its peers, which are trading in range of 11-14x EV/EBIDTA. BCL posted OPM of 12.80% & NPM of 4.36% in FY07, whereas its peers have posted an OPM in the range of 17% to 36% and NPM in the range of 11% to 21% in the same period.
BCL have lowest profitability among its peers mainly due to the high purchase cost of clinker. We are of the view that margins will increase only after the current expansion is completed i.e. in October 2008. Moreover, this being very small company in terms of revenue as well as market-cap, liquidity and institution participation will be a major disadvantage. Hence, we recommend ignore the issue.
Source: Moneycontrol.com
Thursday, November 29, 2007
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