Chemtech Industrial Valves IPO-Should you invest?

Chemtech Industrial Valves SME IPO; Chemtech Industrial IPO; Chemtech IPOChemtech Industrial Valves IPO-Should you invest

Chemtech Industrial Valves IPO would hit the market on 15th January, 2014. This SME IPO would get listed on the BSE SME Platform. This issue consists of 49.52 Lakhs shares for Rs 7.43 Crores. In this article, I would provide analysis about the Chemtech Industrial Valves IPO and some hidden facts about this company. Read the complete article, if you are planning to invest in  a Chemtech Industrial IPO.

About Chemtech Industrial Valves

Chemtech Industrial Valves Limited is engaged in the business of manufacturing carbon steel and stainless steel industrial valves of various types & sizes. Company manufacture and supplies various types of ball, butterfly, globe, gate and check valves and have a significant customer base in the steel industry.

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Issue details of Chemtech Industrial Valves IPO

  • IPO opens: 15th January, 2014
  • IPO closes: 17th January, 2014
  • Face value: Rs 10
  • Issue price: Rs 15
  • Minimum bid: 8,000 shares for retail investors and in multiples of 6,000 shares thereof
  • Minimum investment: Rs 120,000
  • Lead managers: Choice Capital Advisors (P) Ltd
  • Listing: BSE SME
  • Download Prospectus of Chemtech Industrial IPO

Purpose of the IPO: The funds would be used for the following purposes.

  • To acquire additional plant & machinery at the existing manufacturing facilities of our Company located at the village: – Vadvali, Tal: – Wada, District: Thane
  • To fund the interiors of the corporate office of the company, which has been acquired at Thane?
  • To meet the incremental working capital requirements
  • To meet the expenses towards general corporate purposes.
  • To get the equity shares of our Company listed on SME platform of BSE

Company Financials

Company has posted revenue of Rs 626 Lakhs for the year ended Mar-2009 and 2,273 Lakhs for the year ended Mar-2013.

Company has posted a profit of Rs 5 Lakhs for the year ended Mar-2009 and Rs 125 Lakhs for the year ended Mar-2013.

Reasons to invest in Chemtech Industrial Valves IPO

Good growth in the revenues in the last 5 years.

Good profit growth in last 5 years

Reasons not to invest in Chemtech Industrial Valves IPO

The IPO’s listed on the BSE SME platform are trading on low volume and  liquidity is an issue.

Minimum investment required is Rs 1.20 lakhs.

Hidden facts of Chemtech Industrial IPO

  • Two years back, the company has incurred loss of Rs 10.74 Lakhs for the year ended Mar-2011.
  • Though revenues have been growing year on year, its profits for 8 months ended Nov-2013 shows a profit of Rs 23 Lakhs which indicates profit margin is 0.90% of the revenues. However it shows good profits in last 2 years i.e. 6.35% margins for year ended Mar-2012 and 5.52% for the year Mar-2013. Means in the last 8 months there is a sudden dip in profit margins, which is a major concern. Margins of < 1% can be easily wiped out due to various factors like competition, economic conditions etc.

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Recommendation / Investment strategy:

  • Average EPS for the last 3 years is Rs 1.69. At issue price of Rs 15, this translates to a P/E ratio of 9x.
  • There is no peer to compare with similar business which is listed. Though the profits look good in previous two financial years, there is a sudden drop in profits in last 8 months ended Nov-2013. I agree that it may be due to various reasons and there could be improvement seen in the future. I would have been excited if the profit growth story continued in this year too.
  • I am neutral on this Chemtech Industrial IPO as of now.  

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Chemtech Industrial Valves IPO

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