Keynote Capitals has come out with a report on Sejal Architectural Glass' IPO. It has recommended investors to subscribe the issue with a long term view.
The issue has opened for subscription with its initial public offering (IPO) of 9.2 million equity shares of face value Rs 10 each. The issue will close on June 12, 2008. The price band has been fixed at Rs 105 to Rs 115 per equity share.
Keynote's report on Sejal Architectural Glass' IPO:
Incorporated in 1998, Sejal Architectural Glass (SAGL) is into processing of insulating, toughened and laminated glass. Its plant is located at Dadra, Nagar Haveli. The company also has a trading division which supports various in-house brands and products of other manufacturers. The products include tiles, sanitaryware, mirrors, glass, etc. for home and commercial interiors.
The per capita consumption of glass doubled from 0.4Kg in 1999 to 0.8 Kg in 2007. Float glass and sheet glass constitute 89% and 11% of the flat (float and sheet) glass market respectively. The flat glass industry in India grew by 90% during FY00-07. The demand for flat glass in 2005 was 1977 tonnes per day, a growth of 18.5% y-o-y.
Construction and auto are the major user industries of float glass. While 83% of glass is used in construction, 15% is used in automotive industry. Both these industries reported phenomenal growth during the past few years, on account of softened interest rates.
However, the recent macro-economic developments are not very encouraging for construction and automotive industries. In the backdrop of the growing inflation, rising crude oil prices and increasing interest rate scenario, both industries are likely to see a marginal slowdown in the medium term.
The glass industry is also going under the strain of over-capacity situation, (which is likely to continue for next 1-2 years), cheap Chinese glass imports and lack of codes of standards for Indian glass.
SAGL plans to set-up a glass manufacturing line (capacity of 550 tonnes per day) in Gujarat. The line is expected to commence production in March 2009.
The Indian glass industry has immense potential to grow as the long term growth story in the constructionand automotive industries in India remains intact. The introduction of low-cost cars and the changing focus of real estate developers to semi-urban cities due to high land prices can be major growth drivers.
In our view, though SAGL has a track record of 7 years in the glass industry, processing has been its core business. We believe there is an execution risk. Further the expansion will reflect in revenues only from FY10. The company has raised Rs310Cr in debt for the purpose of expansion, servicing of which can further impact profitability. Competing with other market leaders and marketing efforts would require strong management support.
Valuation:
IPO is priced at 73.3x FY09E and 19.4 FY10E earnings. Considering the aggressive plans of the company (increasing balance sheet size by 6 times) and also taking into account execution risks, high leverage, recent macro-economic scenario, we recommend subscribing with a long term view only.
Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Source: Moneycontrol.com
Tuesday, June 10, 2008
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