AVOID subscribing even though there may be listing gains
Shilpi Cable Technologies Limited (Shilpi) is tapping the capital markets with its IPO which opens on Tuesday the 22nd of March and closes on Friday the 25th of March. The company plans to raise Rs 5587.72 lacs in a price band of Rs 65-69.
| Price Band | Rs 65 – Rs 69 |
| Offer size in shares | 85,96,492 Equity Shares at Rs 65 to 80,98,145 Equity Shares at Rs 69 |
| Issue Size | Rs 5587.72 lacs |
| QIB’s | 42,98,246 Equity Shares at Rs 65 to 40,49,072 Equity Shares at Rs 69 |
| Non Institutional Investors | 12,89,474 Equity Shares at Rs 65 to 12,14,722 Equity Shares at Rs 69 |
| Retail Investors | 30,08,772 Equity Shares at Rs 65 to 28,34,351 Equity Shares at Rs 69 |
| Book Running Lead Manager | D&A Financial Services Private Limited |
| Isssue Opening Date | Tuesday 22nd March |
| Isssue closing date | Friday 25th March |
| IPO Grade | CARE grade 1/5 indicating poor fundamentals |
| Paid -up Capital Pre IPO | 2,42,00,000 Equity Shares |
| Marketcap Post Listing | Rs 21317.72 Lacs at lower band and Rs 22285.72 lacs at higher band |
| Bid Lot | 79 shares |
| Bidding Amount for Retail | 2844 shares at Rs 69 or Rs 1,96,236 per application |
Business
M/s Shilpi Cable Technologies is a closely held public limited company incorporated in July 2006 and was formerly known as M/s Rosenberger Shilpi Cable Technologies Ltd. which was a 50:50 joint venture between M/s Shilpi Communications Pvt. Ltd. (SCPL) and M/s Rosenberger
Hochfrequenztechnik GmbH & Co. KG, Germany ( Rosenberger), to take up the project of Radio
Frequency (RF) Cables. The joint venture partners signed Share Subscription Cum Shareholders
Agreement in July 2006. However in view of dispute between them, the shares of Rosenberger were acquired by the Indian promoter in 2008, who are the present Promoters of the Company. Rosenberger offered to buy the Indian promoter at Rs 22 per share at which price they were bought out by the Indian promoter as per terms of the JV. During the process of buy-out the manufacturing plant was shut for 8 months.
The company manufactures RF cables of various sizes for the telecom industry. It also makes low voltage power cables and trades in cable accessories. These products are used in telecom towers and the utility is to act as the high-frequency transmission medium to carry high frequency or broadband signals between antenna and its base station. These feeder cables are of vital importance to obtain optimal performance of the cell site.
The company has quoted from a report in the RHP about the demand forecast for products manufactured and traded by it and estimated the same to be Rs 3,733 crs in 2009-10, Rs 3,705 crs in 2010-11, Rs 3,332 crs in Rs 2011-12 and Rs 3,058 crs in 2012-13. Two things are very clear that the demand seems to be peaking out and would tend to fall by about 10% every year going forward. Secondly the present sales of the company in 2009-10 were a mere Rs 170 crs implying less than 5% market share. The demand as per the company is huge. The company sells its products directly to OEM suppliers and also bids through tenders.
Objects of the issue
The objects of the issue are as follows: –
| Rs in Lacs | |
| To raise funds for capital expenditure on Cable/wire Assembly Shop | 865.42 |
| To raise funds for capital expenditure on tools for 3G enabling | 446.69 |
| To raise funds for capital expenditure on augmenting cable mfg. Capabilities | 1621.61 |
| To raise funds towards margin for working capital for proposed new business | 1554.00 |
| To raise funds for investment in the Subsidiary M/s Shilpi Cabletronics Limited | 500.00 |
| To raise funds for general corporate purposes | 300.00 |
| To meet the expenses of the issue | 300.00 |
| Total | 5587.72 |
Financials
The company has made profits for the first time in the year ended March 2010. Secondly the margins seem to be improving but the trading component sale has dramatically gone up which does not fit in with the business of the company.
| 31st Mar 09 | 31st Mar 10 | 30th Sept 10 | Annualised | |
| 31st March 11 | ||||
| Sales of products manufactured | 4437.75 | 13213.16 | 7363.71 | 14727.42 |
| Sales of traded products | 400.69 | 3777.74 | 3470.81 | 4000.00 |
| Net Sales | 4838.44 | 16990.90 | 10834.52 | 18727.42 |
| Profit loss before tax | -599.76 | 1498.23 | 996.52 | |
| Net Profit or loss after tax | -398.05 | 904.06 | 696.21 | 1204.17 |
| Net Margin % | 5.32 | 6.43 | 6.43 |
Valuations
The company has chosen to compare itself with companies like Surana Telecom Limited and Bhagyanagar India Limited. Neither of these companies is in the business of manufacturing cables of any sort. The only comparison is to fulfil the requirement of the RHP that there must be a competitor. The competition in the business is from Andrew Telecommunications India Pvt Ltd, Microqual Techno Pvt Ltd and LS Cable Limited.
The company has earned an EPS of Rs 2.76 on a fully diluted basis for the year ended March 2010. In the current year ending March 2011 based on half yearly annualised numbers for September, the EPS would be Rs 3.67 at the lower end of the band and Rs 3.72 at the upper end of the band. The issue is a fixed amount issue and the price at which shares would be issued would change the total number of shares. In terms of PE valuations the share is being offered at a valuation of between 23.58 and 24.65 times based on March 2010 numbers and a more respectable 17.7 times to 18.51 times the expected earnings for March 2011.
The company’s growth in numbers shows huge rise in sundry debtors and also a substantial increase in inventories. These are normal gimmicks used by IPO bound companies and one should not get carried away with the same.
The issue is of a very small capital company and there has been flavour for such shares in the last couple of months. One should be very careful when applying for such issues. I believe this issue can be avoided on fundamental basis and even the IPO grading is the bare minimum of 1/5 which speaks for itself.
Conclusion
The company is fairly new and is yet to complete even the mandatory three year track record of making profits which makes a company investment grade. I recommend that serious investors, who believe in fundamentals, should avoid the issue.
SEBI Disclaimer: – I do not intend to subscribe to the above issue.
