Slideshow

Cheap Web Hosting Sites

Social Icons

'

Monday, June 27, 2011

Readymade Steel India Limited (RSIL) IPO Analysis Report

Readymade Steel India Limited (RSIL)
Issue Highlights
Issue Period:  27/6/2011 to 29/6/2011
Issue Size:   ì   34.74 crore
Price Band:  ì   90 to ì   108
Face Value:  ì   10
Lot Size:  60 shares
Maximum Retail Subscription Limit: ì  1,94,400

About Industry and company
Indian steel production is growing at CAGR of 8.5 % per annum (FY 05-FY 09). With growing Indian economy, construction industry is also growing and has a contribution of around 7% in the national GDP. Government is also emphasizing on construction sector with programs like NHDP (National Highway Development Program), PMGSY (Prime Minister Gram Sadak Yojana) and Bharat Nirman, all these shall boost the demand of steel in India.
RSIL has the capacity of 27,000 MTPA for processing of steel products used in construction industry like cranked bars, stirrups, verticals, column-beam cages etc.
Traditionally cutting and bending of steel and further fabrication works is carried out at construction sites which results in more wastage, more labor requirement and more storage space at construction site; RSIL fabricates these products with automated machine and at its plants and delivers readymade products (better called readymade steel) to construction companies at their site.
Other benefits of readymade steel are uniformity of product  and the precision.
Readymade steel is used in Road Constructions, Seaports, Airports, Power Plants, Housing Development , Bridges, Metros and Monorails.
Few years back RMC (Readymade Concrete ) too was a new concept but now a days it is well accepted concept in Indian construction industry, similarly readymade steel concept too is supposed to be accepted by the construction sector.
RSIL has supplied readymade steel to projects like Mumbai Monorail, Nasik Elevated Corridor, and Sahara Elevated Access Road etc.
Opportunities
·         Cost of procuring, monitoring, supervising(and other indirect costs) costs of construction process is about 22% of assets being created and use of readymade steel is supposed to significantly reduce such expenses
·         India has one of the largest road networks in the world, and still lot needs to be done in road network and this shall unleash the growth opportunity for RSIL in future
Risk factors
·         The concept of ready to use steel is still new in India and requires changing the mindset of construction people to migrate from conventional ways to readymade steel products
·          Very concentrated customer base – 95% of revenue comes from only 6 customers
·         Current processing facility is restricted to single place –Khopoli in Raigad
·         Increasing steel prices are capable of affecting companies profitability
Object of the issue
·         Majority of issue proceed shall be utilized in setting –up facilities in Raipur and new Delhi
·         Capacity expansion of existing facility at khopoli (Raigad, Maharashtra)
·         Working capital requirement

Financial Analysis
M-Cap/Sales Ratio
570.00%
*
EPS
0.7
Book Value
2.7
P/E 
154.3
*
P/B
40
#*
Debt/Equity Ratio
1.4
Net Profit Margin
2.80%
RONW
25.90%
ROCE
2.50%
PS:

FY 11 Annualized data (wherever necessary)
# non annualized
* All calculations at upper price band 108

Inference
The issue is over stretched and at upper price band issue is very expensive. In FY 11 (till Q3) company has pushed the sales on credit and on other side its secured loan increased by 120%.
Post issue EPS comes out to be just ì  .7 and at upper price band of 108 it give whopping price-earnings multiple 153% while Net Profit Margin is meager 2.8 % only.
M-cap /sales ratio is 5.7 indicate how stretched valuations are.(post issue M-cap at ì  108)
Though company is in the niche sector which has got potential to grow in future but it is not at all advisable to invest at such high valuations.
This IPO should be clearly avoided and those who are interested in this company should wait for this stock to correct and should start accumulating from secondary market.
Disclaimer
Analysis is for the information purpose only. Though due diligence has been taken while preparing this report, analyst shall not be responsible for any error and shall not bear any financial liability to the users of the report.

0 Comments:

Post a Comment

Related Posts Plugin for WordPress, Blogger...