Pennar Engineered Building Systems IPO-Should you subscribe?

Pennar Engineered Building Systems IPOPennar Engineered Building Systems IPO-Should you subscribe?


Hyderabad based, Pennar Engineered Building Systems IPO will open for subscription on 25th August, 2015. Pennar Engineered Building Systems Ltd is subsidiary of Pennar Industries. Its revenues grown by 12 times in last 5 years. It earned 5% profits for FY2014-15. What are the positive factors of Pennar Engineered Building Systems IPO? What are hidden factors of Pennar Engineered Building Systems Ltd IPO? Should you invest in Pennar Engineered Building Systems Limited IPO or not?

About Pennar Engineered Building Systems Limited


Pennar Engineered Building Systems is a custom designed building systems solutions provider. It is a subsidiary of Pennar Industries.

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Issue details of Pennar Engineered Building Systems IPO


  • IPO opens: 25-August-2015
  • IPO closes: 27-August-2015
  • Face Value: Rs 10 per share
  • Issue price band: Rs 170 to Rs 178 per share
  • Minimum Shares: 80 shares
  • Minimum amount: Rs 13,600 at lower price band
  • Issue size: Rs 93.7 to Rs 98.19 Crores
  • Lead Managers: Motilal Oswal and Axis Capital
  • Listing: BSE and NSE
  • Download Pennar Engineered Building Systems Limited IPO Prospectus at this link

Purpose of the IPO


  • Repayment/ prepayment, in full or part, of certain working capital facilities
  • Financing the procurement of infrastructure (including software and hardware) for the expansion of design and engineering services
  • General corporate purposes

Company Financials (reinstated)


  • Company generated revenue of Rs 31.06 Crores for the year ended Mar-10 and Rs 369.74 Crores for the year ended Mar-14.  For 7 months ended Nov-14, it earned revenue of Rs 238.27 Crores.
  • Company posted a Profit of Rs 0.23 Crores for the year ended Mar-10 and a Profit of Rs 18.18 Crores for the year ended Mar-2014.  For 8 months ended Nov-14, it earned profit of Rs 4.16 Crores.
  • Its diluted EPS for FY 2014 is Rs 6.03 and last 3 years average EPS of Rs 5.66.

Pennar Engineered Building Systems IPO-Financials

Reasons to invest Pennar Engineered Building Systems IPO


  • Good revenue growth in last 5 years. It increased its revenue by almost 12 times in last 5 years. However FY2015 complete year revenues are yet to be known, hence we need to keep an eye on its last year revenue.

Reasons not to invest in Pennar Engineered Building Systems IPO


  • Thought it earned 4%+ margins in previous years, it earned just 1.7% margins for 8 months ended Nov-14. Such margins can erode with increase in raw material prices.
  • Company is affected by the prices, availability and quality of its raw materials used in the production.
  • The inability of design and engineering team to design company products in an efficient manner may lead to reduced margins.
  • They are dependent on a few suppliers for its raw materials. They may face contractual risks under its supply contracts and the risk of failure by its suppliers for timely delivery of raw materials
  • They depend on the performance by their building contractors for timely completion of its projects.
  • They face significant competition in its business. An inability to compete effectively may lead to a lower market share or reduced operating margins.
  • They are subject to certain restrictive covenants in its financing arrangements which may limit its operational and financial flexibility, and its future results of operations and financial condition may be adversely affected if we fail to comply with these covenants.
  • Delays or defaults in customer payments could adversely affect its financial condition.
  • Company technology know how license arrangement with NCI Group, Inc. is on a non-exclusive basis.
  • Other risk factors (Internal and external) can be viewed in prospectus Page no. 16 onwards.

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Recommendation / Investment strategy


  • At the issue price band of Rs 170 to Rs 178 and EPS of FY2014 and last 3 years average, P/E Ratio is being asked is in between 28 to 31.
  • There is no listed competitors who are in similar line of business to compare the issue price, hence we cannot say whether the issue price is correct or not.
  • Pennar Engineered Building Systems revenues have been growing consistently.  However, its decline in profits for 8 months ended to 1.7% is a surprise and may continue in future. Investors should be little careful considering such sudden dip in margins. Currently, I am neutral on this IPO considering all these positive and negative factors.

Disclaimer: I do not have interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.

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Suresh
Pennar Engineered Building Systems IPO-Should you subscribe

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