Rushil Decor Limited is tapping the capital markets with its IPO in a price band of Rs 63-72 for a net issue of 54 lac shares. The issue opens on Monday the 20th of June and closes on Thursday the 23rd of June.
| Price Band | Rs 63 – Rs 72 |
| Offer size in shares | 56,43,750 Equity Shares |
| Contibution by Promoters | 2,43,750 Equity Shares |
| Net Offer in shares | 54,00,000 Equity Shares |
| Issue Size | Rs 34.02 crs at Rs 63 to Rs 38.88 crs at Rs 72 |
| QIB’s | 27,00,000 Equity Shares |
| Non Institutional Investors | 8,10,000 Equity Shares |
| Retail Investors | 18,90,000 Equity Shares |
| Book Running Lead Manager | Corporate Strategic Allianz Limited |
| Co-Book Running Lead Manager | Indbank Merchant Banking Services Limited |
| Syndicate Member | Hem Securities Limited |
| Issue Opening Date | Monday 20th June |
| Issue closing date | Thursday 23rd June |
| IPO Grade | ICRA grade 2/5 indicating below average fundamentals |
| Paid -up Capital Pre IPO | 87,56,250 Equity Shares |
| Paid -up Capital Post IPO | 1,44,00,000 Equity Shares |
| Market Cap post listing | Rs 90.72 crs at lower band to Rs103.68 crs at higher band |
| Bid Lot | 90 shares |
| Bidding Amount for Retail | 2700 shares at Rs 72 or Rs 1,94,400 per application |
Business
Rushil is into the business of manufacturing decorative laminated sheets and plain particle boards. The company has its manufacturing facilities in Gujarat. Its present installed capacity is 30 lac sheets of decorative laminate and 13,76,000 square metres of plain particle board. The company has a brand name “VIR” under which it markets its decorative laminate and board. The business is regulated and has huge entry barriers that require the grant of licenses for the manufacture of wood based products. The Supreme Court in 2002 had come down very heavily on this sector.
The company is a cost effective producer of laminate and particle board and has been operating at capacity and also producing higher than the installed capacity. The company has a well spread dealer network involving 70 distributors and 2150 dealers across the country. The company employs 51 sales executives and has 5 marketing offices.
Objects of the issue
The objects of the issue are as follows: –
| Setting up of Medium Density Fibre Board plant in Karnataka | Rs 7000.02 lacs |
| Margin for working capital requirement | Rs. 336.84 lacs |
| Public issue expenses | Rs XX |
| General Corporate Purposes | Rs XX |
The capacity of the MDF plant would be 90,000 cubic mts and the company has been sanctioned a term loan of Rs 44 crs by Bank of Baroda for the same.
Financials
The company has been in business since 1993. In 2005 two group companies Mica Rushil Pvt Limited and Rushil High Pressure Laminates were merged with the flagship company Rushil Decor.
The company had total income of Rs 102.63 crs in the year ended March 2010 and Rs 96.62 crs in the nine month period ended December 2010. The net profit after tax was Rs 3.85 crs in March 10 and Rs 3.76 crs in nine months ended December 2010.
| Rupees in Lakhs | year 2009 | year 2010 | 9 months |
| Dec-10 | |||
| Domestic Sales | 4070.04 | 4498.4 | 5296.92 |
| Export Sales | 4697.04 | 5047.83 | 3470.22 |
| Total sales | 8767.08 | 9546.23 | 8767.14 |
| Other Income | 793.22 | 624.41 | 605.29 |
| increase/decrease in stock | 119.32 | 92.03 | 290.14 |
| Total Income | 9679.62 | 10262.67 | 9662.57 |
| Total Expenses | 9225.85 | 9588.15 | 9141.44 |
| Profit before tax | 453.77 | 674.52 | 521.13 |
| Taxes | 176.24 | 289.13 | 145.22 |
| Net Profit After Tax | 277.53 | 385.39 | 375.91 |
| NET MARGINS | 2.87 | 3.76 | 3.89 |
The net margins seem to have improved in the current nine months and the significant change that has happened is the threefold increase in inventory from Rs 92.03 lacs in the year ended March 2010 to Rs 290.14 lacs in the nine month period ended December 2010. This has significantly helped the net margins improve from 2.87% in the previous year to 3.76% and now to 3.89%.
Comparisons
The company has chosen to compare itself with Century Ply and Greenply Industries. Century Ply Industries limited reported a topline of Rs 1,429 crs for the year ended March 2011 with a net profit of Rs 189.69 crs. The net margin is 13.27%. The other company is Greenply Industries which reported sales of Rs 1,231 crs and a net profit of Rs 25.09 crs. This drop in profit was on account of closure of one of its plants. The closure apart the company is significantly bigger in size of sales and is roughly 10 times the size of Rushil.
Centuryply is available at a PE multiple based on March 11 numbers of 7.72 times while Greenply is available at a multiple of just about 16.7 times.
Risks
The company is setting up the MDF plant using Chinese machinery which has not yet been very successful in India or has yet to prove its efficacy. The MDF board industry has not been very successful in the country because of various problems, and large players like Bajaj Hindustan have had problems in stabilising production. Availability of raw materials has always been a concern and with environment issues in the case of felling of trees, this is a serious issue.
Valuations
Rushil Decor Limited is offering shares in a price band of Rs 63-72. The company earned a net profit of Rs 385.39 lacs in the year ended March 2010. The EPS based on the pre-IPO capital 0f 87.56 lac shares is Rs 4.40. If one were to consider the current year’s profit for the nine months on an annualised basis the same would be Rs 501.21 lacs. The fully diluted equity would be 144 lac shares and the fully diluted earnings per share would be Rs 3.48. Based on the IPO price of Rs 63-72, the price earnings multiple at which the shares are being offered would work out to 18.10 times at the lower end of the price band and 20.69 times at the upper end of the price band.
Conclusion
This is yet another issue from Ahmedabad and the merchant banker is also from Ahmedabad. The pricing of the issue is not only expensive it is substantially higher than the market leaders with whom the company has chosen to compare itself. With nothing in it for investors why should one invest in a company is the moot question. It appears merchant bankers and promoters just do not understand that issues are to be priced at levels where investors who put their hard earned money make some money, not lose it. I believe one should simply avoid this issue and resist the temptation of there being “friendly” people behind the issue.
SEBI Disclaimer: – I do not intend to apply to the above issue
