SUBSCRIBE with medium term horizon
BS Transcomm Limited is tapping the capital markets with an IPO which opens on Wednesday the 6th of October and closes on Friday the 8th of October. The price band of the issue is Rs 257-266 and the issue size of 76.79 lakh shares would garner Rs 197.36 crs to Rs 204.27 crs.
| Price Band | Rs 257-Rs 266 |
| Issue size in Rs | Rs 197.36 crs at Rs 257to Rs 204.27 crs at Rs 265 |
| Offer size in shares | 76,79,410 Equity shares |
| QIB’s | 38,39,705 Equity Shares |
| Non Institutional Investors | 11,51,912 Equity Shares |
| Retail Investors | 26,87,794 Equity Shares |
| Marketcap post issue | Rs 562.28 crs to 581.97 crs |
| Book Running Lead Manager | JM Financial Consultants Private Limited |
| Syndicate Member | JM Financial Services Private Limited |
| Sunidhi Securities and Finance Limited | |
| Isssue Opening Date | Wednesday 6th October |
| Isssue closing date | Friday 8th October |
| IPO Grade | 2/5 by ICRA Limited indicating below average fundamentals |
| Bidding Lot | 25 shares |
| Maximum Retail Bid in shares and amount | 375 shares at Rs 265 Rs 99,375 |
Business
BS is engaged in the business of providing a range of services to telecommunication infrastructure providers for setting up their passive infrastructure and to power transmission companies for setting up their transmission lines and sub-stations. BS is engaged in the manufacturing and supply of telecommunication and transmission towers, substation structures and providing service solutions to the telecommunication infrastructure and power transmission sectors. Subsequent to the acquisition of SAPL, BS is also engaged in the designing, building, and deploying related technology products and solutions to the telecommunications infrastructure sector.
The present capacity of tower manufacturing is 1,20,000 tons per annum. BS has in the last financial year done backward integration by setting up an integrated structural steel plant which is critical for the manufacturing of towers. The steel plant has a capacity of 90,000 tons which can be ramped up to 1,35,000 as the demand moves up.
The company has an order book of Rs 531.69 crs as of July 2010, which comprises of EPC contracts of Rs 472.57 crs, Telecom towers is Rs 25.82 crs (normal time to execution within two months), and from turnkey service projects and managed services for telecom sector Rs 33.29 crs. The order book of the subsidiary company SAPL is Rs 22.77 crs as on 31st July which includes an order from Applied Solar Technologies (India) Private Limited. SAPL has also received a letter of intent for tower maintenance of Rs 200 crs over a ten year period for 500 sites.
BS has supplied towers to Reliance Infratel, Indus Towers, Power Grid Corporation, Tata BP Solar and Quippo Telecom Infrastructure amongst others. The company in order to offer a complete and comprehensive service and end to end solutions has added to its portfolio telecom shelters, Solar and Wind energy solutions; Gas insulated switchgear supply and servicing upto 245 kv. These relationships and capabilities will help BS to become a complete integrated and end to end solutions player in the telecom and transmission tower space.
The Objects of the Issue are:
| 1. | Part funding of Phase I i.e. expansion in Tower Manufacturing and galvanizing capacity from 36,000 MTPA to 1,20,000 MTPA (i.e. an increase in installed capacity by 84,000 MTPA) and setting up of the Backward Integrated Structural Mill with an installed capacity of 90,000 MTPA*. |
| 2. | Funding of Phase II i.e. expansion in Tower Manufacturing and galvanizing capacity from 1,20,000 MTPA to 2,40,000 MTPA (i.e. an increase in installed capacity by 1,20,000 MTPA); |
| 3. | To part finance margin money for working capital for the Project*; |
| 4. | To fund general corporate purposes; |
| 5. | To meet expenses of this Issue; and |
| 6. | To get the Equity Shares of the Company listed on the Stock Exchanges. |
* As mentioned above, the Company has completed Phase I (except galvanizing capacity expansion and purchase of certain miscellaneous fixed assets) including margin money for working capital financing through certain short-term and long term loans which the Company now intends to repay out of the Net Proceeds of the Issue.
Cost of the Project and other objects of the Issue
The expenditure envisaged for the Project is as under:
| (Rs. in lakhs) Sl. No. | Particulars | Phase I | Phase II | Total |
| 1 | Land | 255 | 346 | 601 |
| 2 | Site Development | 1,467 | 1,179 | 2,646 |
| 3 | Building and Foundations | 2,039 | 2,569 | 4,608 |
| 4 | Plant and Machinery | 5,785 | 5,429 | 11,214 |
| 5 | Miscellaneous Fixed Assets and other expenditure | 250 | 348 | 598 |
| 6 | Working Capital Margin | 4,801 | 1,850 | 6,650 |
| Total | 14,597 | 11,721 | 26,318 | |
| 7 | General Corporate Purposes** | [●] | [●] | [●] |
| 8 | Issue Expenses** | [●] | [●] | [●] |
Financials
BS reported consolidated revenues of Rs 340.95 crs for the year ended March 2009 and Rs 540.15 crs for March 2010. The first quarter of the current year ended June 2010 saw revenues of Rs 173.99 crs. The net profit after tax and minority interest for the respective periods was Rs 12.37 crs, Rs 23.71 crs and Rs 13.36 for the first quarter of June 2010-11.
The pre-IPO equity of the company is Rs 1,41,99,250 shares and based on this equity the company earned an EPS of Rs 8.71 for year ended March 09, Rs 16.70 for the year ended March 10 and Rs 37.64 on an annualised basis for the first quarter of 2010-11. If one were to look at the price earnings multiple based on these numbers it would be 15.39 to 15.93 based on March 2010 numbers and between 6.82 and 7.07 times based on first quarter annualised numbers
Comparisons
BS believes that its comparison can be done with companies like Jyoti structures, KEC International, Kalpataru Power and Sujana Towers. These companies quote at PE multiples of between 11.9 and 17.1 times. The comparison puts BS at a fair valuation compared to its peers.
The differentiation between a BS and the rest is three fold. One BS has an integrated steel mill which gives BS an edge in terms of cost of steel which is a key raw material. Secondly the managed services offering helps in getting better margins for the overall business and thirdly the technology edge is provided by SAPL where they are able to leverage on their technology business and offer a suite of services on the telecom space be it remote managed, security, energy solutions etc.
Conclusion
The company BS is well poised to grow rapidly in the infrastructure space where it provides towers in the telecom and power transmission space. To capitalise on the growth opportunity in these spaces it has offered value added and turnkey solutions in the power space by bidding for turnkey and EPC contracts from Power Grid and other state electricity boards. It is at the same time forged relationships with equipment manufacturers for GIS and Transformers and also for the erection and maintenance of such products in India. On the telecom space it is offering complete management of cell sites which include remote monitoring, energy management etc.
The share issue price is Rs 257-266 which on a fully diluted equity of 2,18,78,660 is being offered at a PE multiple of 10.52 times to 10.89 times based on first quarter June 2010-2011 annualised numbers. The growth and prospects of the company make this a great investment for the medium and long term. I recommend that investors looking at substantial gains of atleast 30% plus should apply and expect the same to happen in less than a year’s time from now.
Investors looking to make decent returns of 30% in next eight months or thereabouts must apply.
SEBI Disclaimer: – I intend to apply to the above issue.
