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Thursday, June 28, 2012

Max Alert systems Ltd. (MASL) IPO Review



   (A)  Issue Highlights

(1)    Issue Period: 28/6/12-2/7/12
(2)    Issue Price: Rs. 20
(3)    Issue Size: Rs.8 crore/40,00,000 equity shares
(4)    Issue Type: Fixed Price issue
(5)    Face Value: Rs. 10
(6)    Registrar: Sharepro Services (India) Ltd.
(7)    Listing: BSE
(8)    Industry: Fire fighting & BMS (Building Management System)


   (B)   Company Profile

The company primarily provides the solutions for firefighting and renders BMS services.
It manufactures fire detection and suppression systems and various security systems. Besides this, it offers corrective and preventive annual maintenance services or AMC and provides refilling and calibration services.

BMS or Building Management System ensures managing environment in large buildings-
Various core functions like temperature control, carbon dioxide level maintenance humidity control, power and lighting and various security measures are taken care of.

Major Customers:
1.      Goa State Infrastructure Development Corporation Ltd.
2.      Essel Propack Ltd.
3.      P&G Hygiene And Healthcare Ltd.
4.      Ragmet Engineers Pvt. Ltd.

    (C)   Strengths & Opportunities

·         Due to land shortage in metros and big cities, big buildings are indispensible which unleashes strong growth opportunities for this company.
·         The company is diversifying into crushed stone business which is a key material for macadam road construction and as an ingredient of concrete.
As government is giving a thrust to the infrastructure development this diversification could be beneficial in future for the company.

    (D)  Concerns
·         negative cash flow from operations in past few years
·         around 93% of the revenue comes from top 10 customers(Q3 FY12 figure)
·         dependence on fewer suppliers- around 86% of purchase was from top 10 suppliers
·         dependence on third-party transporters for supply of raw materials and products- higher transportation costs, strikes and delays are major concerns especially for forthcoming crushed stone industry
·         A promoter group company Delta infra limited is involved in similar activities and conflicts of interest are possible
·         Company requires higher working capital

    (E)   Objects of the Issue
·         setting up of crushing plan : 8.6 crore (86 million)
·         to meet the issue expenses :60 lakh (6 million)
·         to take the listing benefits
(IPO offering 8 crore, internal accruals 1.2 crore)




     (F)    Financial analysis#

# Post issue equity considered for FY 12 computing
Parameter
FY 12 Annualized
FY 11
EPS
Rs. 2.4
Rs.3.3
P/E
8.3
6
P/B
2.6
1.9
Profit CAGR (3 years)
15%
51%
PEG
.5
.1
NPM (Net Profit Margin)
5%
5%
ROE (return on equity)
31.3
32%
ROCE (Return on Capital Employed)
26.1
22.4%
Interest Cover
3.5
3.7%
Debt/Equity Ratio
1.6
2
Current Ratio
4
4.3




   (G)  Comparison with the peers: No comparable listed companies

  (H)  Inference

This issue has been floated with an idea of raising capital for altogether different diversification- the crushing business; the crushed-stone industry is highly competitive and prone to environmental compliances which are getting tougher these days. Besides this, transportation costs involved could be as high as or higher than the selling price of crushed stone at the plant.
MASL has not yet obtained blasting license, air & water pollution license and mining license for the crushing plant in Deogarh Jharkhand.
We have seen in the past how Lavasa project was affected by the denial of environmental clearances and subsequent fall in HCC share.
MASL was earlier involved in the installation of mobile towers business but presently not emphasizing on it.
This type of ‘trial and error’ approach in diversification makes it vulnerable to sudden change of incomes and the same has been reflected by the negative cash flow from operations in the past few years.
The company operates in SME sector and net profit margins too are thin. Listing is on BSE only.
Considering all this, investing in this stock is a risky proposition and value investors better avoid it.

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.

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