Captain Pipes IPO – SME – Can we invest in this IPO?

Captain Pipes IPOCaptain Pipes IPO – SME – Can we invest in this IPO?

Gujarat based Captain Pipes IPO would hit the market on 26th November, 2014. This company has grown by 20 times in revenues in last 4 years. It earns 2.2% margins for the 6 months ended Sep-2014. Everything looks ok on the face of the Captain Pipes IPO. Can we invest in a Captain Pipes SME IPO? What are the positive and negative points in Captain Pipes Limited IPO?

About Capitain Pipes Limited

Captain Pipes Limited manufactures a wide range of high tensile and high impact uPVC threaded Column Pipes, uPVC Plumbing Pipes, uPVC Pressure Pipes, uPVC Casing Pipes, uPVC Plumbing Fittings and uPVC Agri Fittings. This Company is also a supplier of HDPE Pipes (being procured from Captain Polyplast Limited, Promoter Company, which manufactures the same for them on job work basis) and uPVC Column Pipes Fittings being procured from identified manufacturer. It further assembles the procured uPVC Column Pipes with accessories and supply the assembled products to its uPVC threaded Column Pipes customers.

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Issue details of Captain Pipes IPO

  • IPO opens: 26-Nov-2014
  • IPO closes: 1-Dec-2014
  • Face Value: Rs 10 per share
  • Issue price: Rs 40 per share
  • Minimum shares to be applied: 3,000 and in multiples of 3,000
  • Minimum investment: Rs 120,000
  • No of shares: 11.01 Lakhs shares
  • Issue size: Rs 440.40 lakhs
  • Lead Managers: Hem Securities
  • Listing: BSE SME platform
  • Download Captain Pipes IPO Prospectus from SEBI website here

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

  • To Meet Working Capital Requirement.
  • Repayment of Unsecured Loans
  • General Corporate Purpose
  • To Meet the Issue Expenses.

Company Financials

  • Company generated revenue of Rs 202 Lakhs for the year ended Mar-11 and Rs 4,016 Lakhs for the year ended Mar-14.  It earned revenue of Rs 1,536 Lakhs for 6 months ended Sep-14.
  • Company posted a loss of Rs 23.51 Lakhs for the year ended Mar-11 and a loss of Rs 6.77 Lakhs for the year ended Mar-2014. It earned a profit of Rs 33.94 Lakhs for 6 months ended Sep-2014.
  • EPS for FY2014 is Rs (0.25) Negative
  • Average EPS for the past 3 years is Rs (0.79) Negative

Captain Pipes Limited IPO Financials

Reasons to invest Captain Pipes IPO

  • Good revenue growth in last 4.5 years.
  • It earned 2.2% profits in 6 months ending Sep-2014.

Reasons not to invest in a Captain Pipes IPO

  • It incurred losses for 3 years out of last 4 financial years.
  • Company has received a notice under section 143 (2) of Income Tax Act, 1961 issued by the Income Tax Authority pertaining to returns submitted for Assessment Year 2012-13. Any liability would have an impact on company financials.
  • There are certain outstanding legal proceedings involving its Promoter Company viz. Captain Polyplast Limited which are pending at different stages before the Judicial / Statutory authorities. Any rulings by such authorities against its Promoter Company may have an adverse material impact on their operations
  • Have a limited operating history and loss making operations and investors may not be able to analyze past performances or future prospects.
  • Have high working capital requirements. Its inability to meet working capital requirements may have a material adverse effect on business, financial condition and results of operations.
  • They have not entered into any long term supply agreement for the major raw material required for manufacturing of products. Also, volatility in the prices and non availability of this raw material may have an adverse impact on its business.
  • They are highly dependent on Top 5 suppliers for uninterrupted supply of raw-materials. Any disruption in supply of raw materials from these suppliers will adversely affect its operations
  • It has negative cash flows in previous financial years. This indicates that it need to borrow loans for high rate of interest and has difficulty in managing working capital requirements. This would affect the profits of the company.
  • Lenders have charge over movable and immovable properties in respect of finance availed by the company.
  • We are awaiting permission/consent letter from one of its lender; Tata Capital Financial Services Limited, for its proposed alteration of capital Structure through this present issue.
  • 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.

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Recommendation / Investment strategy:

On an issue price of Rs 40 per share, P/E ratio cannot be computed as it incurred a loss in FY 2014 and for 3 financial years out of last 4 financial years. Its competitors P/E Ratio is 70 (Highest-EPC Industries Limited) and 7.1 (Lowest-Sintex Industries Limited) and the industry average is 22.7. Issue price of Rs 40 per share for a loss making company is too much to pay.

Captain Pipes IPO has several negative factors. Though company revenues grew in the last 5 years, there are a few key things to be noted. It incurred losses in 3 out of 4 financial years. It asks Rs 40 per share for a loss making company.  Investors should be very cautious before investing in such loss making companies. I would advise investors to stay away from the such company IPO.

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Captain Pipes IPO – SME – Can we invest in this IPO


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