Keynote Capitals has come out with report on Manaksia IPO. The firm has recommended subscribing to the issue with long term view.
Manaksia, a multi division and multi location company focusing on manufacturing of value added metal products and metal packaging products, has opened for subscription with a public issue of up to 15,500,000 equity shares of Rs 2 each for cash at a price band of Rs 140 to Rs 160 per equity share.
Keynote Capitals report on Manaksia IPO
Recommendation - Subscribe with a long term view
* Manaksia is a multi-product company with a product portfolio that includes value-added metal products, metal packaging, mosquito coils and engineering.
* Manaksia has a wide footprint, with subsidiaries in India, UAE, Nigeria and Ghana. We view the geographic footprint, in India and in Nigeria, as a positive. Nigeria, which offers benefits like low raw material prices and fiscal incentives, accounts for as much as 45% of total revenues.
* Its operations are spread across 15 manufacturing units in India and 3 international units in Africa, thereby exploiting the location advantages of raw material procurement, fiscal incentives, proximity to customer resulting in reduction in logistic costs and delivery time.
* Manaksia has successfully been able to integrate certain parts of its operations across a number of products. It has reduced third party dependence for procuring raw materials, leading to cost reductions and better product quality.
* In FY07, metal products constituted 72.5% of aggregate revenues. Going forward, we expect the dominance of metal products to continue, as it further expands its capacity out of the IPO proceeds.
* It plans to achieve vertical integration by setting up a steel cold rolling plant of 50,000tpa at Haldia, West Bengal, expected to be completed by December '07. This will provide raw material for its plants for galvanized operations located at Bankura and Nigeria.
* Production of mosquito coils lacks synergies with the core business of metal products. Even the core business has an erratic track record of revenue growth.
* The IPO is priced at 10.3x FY08E and 8.0x FY09E earnings and EV/EBIDTA of 7.6x and 5.8x for FY08E and FY09E respectively. Though the valuation appears to be at a discount to peers, we believe the discount is justified, as peers Bhushan Steel and JSW Steel both have captive power plants. Investors may consider this IPO with a long term view only.
Investment Concerns
* Lacks backward integration as it is not self sufficient in iron ore, coal, alumina resources and has no captive power generation capacity.
* Any change in incentive policy/structure may impact profitability.
* Nigeria accounting for 45% of FY07 sales, any currency rate fluctuation may impact earnings.
Source: Moneycontrol.com
Tuesday, December 18, 2007
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