Aanchal Ispat IPO-SME-Can we invest?

Aanchal Ispat IPO-SMEAanchal Ispat IPO-SME-Can we invest?

Aanchal Ispat Limited IPO would hit the market on 24th November, 2014. This SME company has grown 2.75 times in revenues in last 5 years. Aanchal Ispat engaged in manufacturing of Mild Steel TMT Re-bars, Structural Re-bars, Round and other Sectional products as per orders.  What are the positive factors of Aanchal Ispat IPO? Can we invest/subscribe to such Aanchal Ispat IPO? What are the negative points to be seen before investing in Aanchal Ispat Limited IPO?

About Aanchal Ispat Limited

Aanchal Ispat is engaged in manufacturing of Mild Steel TMT Re-bars, Structural Re-bars, round and other sectional products as per orders. Their products are broadly categorized as the Re-bars in the Steel Industry. The main applications of products currently being manufactured are used in the Infrastructure and Construction Industry. Its existing manufacturing unit is ISO 9001:2008 certified from BSCIC Quality Management Systems. Currently, they are having two manufacturing facilities, one for TMT Re-bars and other for Structural Re-bars. They are having an installed capacity of 21000 TPA for TMT Re-bars and 24000 TPA for Structural Re-Bars. They are also engaged in the trading of the products like Mild Steel Billets, Cement & Clinker and TMT & Structural Re-Bars.

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Issue details of Aanchal Ispat IPO

  • IPO opens: 24-Nov-2014
  • IPO closes: 26-Nov-2014
  • Face Value: Rs 10 per share
  • Issue price: Rs 20 per share
  • Minimum shares to be applied: 6,000 and in multiples of 6,000
  • Minimum investment: Rs 120,000
  • No of shares: 80.04 Lakhs shares
  • Issue size: Rs 16 Crores
  • Lead Managers: Inventure Merchant Banker Services Private Limited
  • Listing: BSE SME platform
  • Download Aanchal Ispat IPO Prospectus from SEBI website here

Purpose of the IPO

The funds would be used for the following purposes.

  • Expansion and modernizing by upgradation and automation of our TMT Bar manufacturing facilities
  • Meeting Additional Working Capital Requirements
  • Meeting Public Issue Expenses

Company Financials

  • Company generated revenue of Rs 5,107 Lakhs for the year ended Mar-10 and Rs 19,037 Lakhs for the year ended Mar-14.
  • Company posted a profit of Rs 32.06 Lakhs for the year ended Mar-10 and a profit of Rs 75.47 Lakhs for the year ended Mar-14.
  • EPS for FY2014 is Rs 1.76 and last 3 years average is Rs 1.61

Aanchal Ispat SME IPO-Financials

Reasons to invest Aanchal Ispat IPO

  • Good revenue growth story. Company revenues grew 2.75 times in last 5 years.

Reasons not to invest in a Aanchal Ispat IPO

  • Profits are very thin. Its margins are ranging between 0.3% to 0.6% of revenues. Such small margins can easily wipe-out with a small increase in raw materials.
  • Company does not have long term contracts.
  • Company and its Group Companies are involved in certain legal proceedings. Any adverse decision in such proceedings may render liabilities / penalties and may adversely affect their business.
  • Company had negative cash flow in recent fiscal. This would increase the cost of borrowings.
  • Raw materials constitute a significant percentage of Company’s total expenses. Any increase in prices of the raw material would materially adversely affect Company’s business.
  • Some of the Group Companies promoted by our Promoters have incurred losses in the last three years. This indicates poor promoter performance.
  • Some of the Group Companies promoted by Promoters has negative net worth. Negative net worth of our Group Companies may not be perceived positively by external parties such as clients, customers, bankers etc, which may affect credibility and business operations of this company.
  • Company has unsecured loans, which are repayable on demand. Any demand from lenders for repayment of such unsecured loans, may adversely affect our business operations and financial condition of our Company.
  • SME IPO’s are trading on low volume. Liquidity of such shares could be an issue. Stock brokers can easily manipulate the price of the stock.
  • Minimum investment is Rs 1.2 Lakh which is difficult to invest by small investor.

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Recommendation / Investment strategy

  • On an issue price of Rs 20 per share, based on FY 2014 EPS of Rs 1.76, P/E Ratio works out to be 11.35 times. Based on last 3 years average EPS of Rs 1.61, P/E ratio works out to be 12.44. Its competitors P/E ratios are 57.5 (Highest-Mahindra Ugine) and lowest is 3.0 (National Steel & Agro Inds) and industry average is 11.0. Hence asking price of Rs 20 per share looks reasonable.
  • Aanchal Ispat IPO has some good factors and several negative factors. Good revenue growth story and reasonable issue price of Rs 20 per share tempts investors to subscribe for this IPO. On the other hand, thin margins, negative cash flows, promoter group company losses etc. are some of the negative factors.
  • I would have been more excited if profits was on higher side. Though there is good revenue growth story, investors would not get anything as profits are very thin. Currently, I am neutral on this IPO. In future, if company makes good profits, one can look at investing in such IPO's. 

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Aanchal Ispat IPO-SME-Can we invest

Note: I have seen some comments on my blog indicating that I reject the majority of SME IPO’s which are coming to public for investments. While on this blog (myinvestmentideas.com) I aim to explore best investment options and best saving ideas, I felt it was equally important that I should tell “What are bad investments” too. Investors should not get into a trap and burn their fingers. I welcome any suggestions to improve these SME IPO articles in future.


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