CRISIL assigns IPO grade 2/5 to Shankara Pipes ~ IPO India: IPO News India, Latest IPO News from Share Market India, Indian IPO News

Tuesday, April 8, 2008

CRISIL assigns IPO grade 2/5 to Shankara Pipes

CRISIL has come out with research report on Shankara Pipes India's IPO. It has assigned a CRISIL IPO Grade 2/5 to the company's IPO. The company proposes an IPO of 61,15,000 equity shares.

CRISIL report on Shankara Pipes India's IPO

CRISIL has assigned a CRISIL IPO Grade "2/5" to the proposed initial public offering of Shankara Pipes India (SPIL). This grade indicates that the fundamentals of the issue are below average, relative to other listed equity securities in India.

The grade reflects SPIL’s ability to grow to be a Rs 5 billion steel pipe and tube distribution company, having a strong foothold in South India. The management has demonstrated a good understanding of the Electronically Resistance Welded (ERW) segment within steel pipe and tube distribution, both in terms of supply arrangements with manufacturers and distribution set up.

Over the last few years, however, SPIL has seen a sharp increase in its working capital requirement, leading to the decision of re-modeling its business strategy by entering retail distribution and launching an e-portal. SPIL’s ability to carry forward the expertise of its old business model into these new areas remains to be seen. In addition, the company’s strategy of owning 16 out of the 35 new retail outlets, to be set up in 2008-09, will depress return on investment in the short run as compared to the competing strategies based on leased model.

The grading also reflects the potential conflict of interest that could arise from a promoter-owned entity, which carries out transportation activity for SPIL and another promoter company. Although more than 60 per cent of Shankara Cargo movers (SCM) revenues are from SPIL, the related party transaction constituted only 8.35 per cent of SPIL’s freight cost in 2006-07.

About the company and the issue:
For the year ended March 2007, the company reported a net profit of Rs 87 million on a turnover of Rs 5020.8 million vis-à-vis a net profit of Rs 69.2 million on a turnover of Rs 3462.6 million in 2005-06. SPIL, which began its retail foray in 2006-07 with 12 outlets, registered a turnover of Rs 380 million and an EBDITA margin of 10.0 per cent in 2006-07.

SPIL aims to raise between Rs 790 and 910 million through its proposed public issue of 61,15,000 equity shares.

Source: Moneycontrol.com

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