Ruby Cables IPO – What are the hidden factors in this IPO?

Ruby Cables IPO ReviewRuby Cables IPO – What are the hidden factors in this IPO?

Maharashtra based, the Ruby Cables IPO would open for subscription on 30th March, 2016. Ruby Cables Ltd is engaged in manufacturing of insulated cables and wires. The company posted revenue growth of over 33%. It's not over. There are several hidden factors an investor should know before investing in Ruby Cables IPO. Are there any positive factors in Ruby Cables IPO? You should read complete review of this IPO before taking any investment decision on this IPO.

About Ruby Cables Limited

Ruby Cables Limited is engaged in the manufacturing of all types of PVC/XLPE insulated LT Wires and Cables, under the brand name RU CAB. The Company also manufactures AAC, AAAC, ACSR Conductors and Aerial Bunch Cables. Company's corporate office and existing manufacturing facility are located at village Manjusar, Vadodara.

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Issue details of Ruby Cables IPO

  • IPO opens: 30-March-2016
  • IPO closes: 5-April-2016
  • Face Value: Rs 10 per share
  • Issue price: Rs 50 per share
  • Issue size: Rs 10.01 Crores
  • Market lot: 3,000 shares and in multiples of 3,000 shares therein
  • Lead Managers: Pantomath Capital Advisors Limited
  • Listing: BSE SME
  • Download Ruby Cables IPO Prospectus from SEBI Website at this link

Purpose of the IPO

1. Working capital requirements

2. General Corporate Purpose,

3. Issue Expenses.

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Company Financials (reinstated)

  • Company generated revenue of Rs 27.77 Crores for the year ended Mar-11 and Rs 86.12 Crores for the year ended Mar-15. For 6 months ended Sep-15, it generated revenue of Rs 48.21 Crores.
  • Company posted a profit of Rs 0.44 Crores for the year ended Mar-11 and loss of Rs 2.38 Crores for the year ended Mar-2015. For 6 months ended Sep-15, it generated a profit of Rs 0.42 Crores.
  • Its restated EPS for FY 2015 is minus Rs 7.33 and last 3 years average EPS Rs 0.58

Ruby Cables IPO - Financials

Reasons to invest Ruby Cables IPO

  • Excellent revenue growth. The company has grown at 33% CAGR in last 5 years.

Reasons not to invest in a Ruby Cables IPO

  • Company has incurred loss in FY2014-15 for Rs 2.38 Crores. For 6 months ended Sep-15, the company has posted profits of just 0.9%. This is very low, as it posted 3.3% to 4.4% margins in previous 4 financial years.
  • The company posted a loss for FY2015 inspite of an inventory revaluation to the tune of Rs 9.77 Crores (which is abnormal in last 5 years). Means, the company would have posted a high loss in the last year, if such high revaluation would not have been done. There are only over Rs 1 Crore abnormal items which impacted profit and loss, hence we cannot say that FY15 it posted loss due to some abnormal items.
  • Promoter Mr.Chirag Gadaa long with other investors acquired shares from company from original promoters from 2010. The company does not have certain legal records for the period pertaining to the period of acquisition of shares and business from original promoters.
  • Top 5 customers contribute to 96% of revenues. In case of loss of any such customer would lead to a reduction in revenues.
  • Have a limited number of raw material suppliers. Poses risk of increase in raw materials as competitive prices are not available
  • Promoters have limited experience in cables and wire industry.
  • Company and group company is involved in certain legal proceedings.
  • The company has negative cash flows in the past. Sustained negative cash flows could impact company growth and business.
  • Group company, has incurred losses in the last few years.
  • Other risk factors (Internal and external) can be viewed in the draft prospectus from Page no. 17 onwards.

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Recommendation / Investment strategy

  • On the issue price of Rs 50 and on last 3 years EPS of 0.58, P/E Ratio works out to be 82x. Last year P/E ratio cannot be computed as the company has incurred loss. Its competitors P/E ratio is 13.73 (Lowest) and 278.81 (Highest) and industry average is 82.33. Since the company has incurred loss in last year, we cannot say that issue price is under priced or overpriced.
  • Company shown good revenue growth in last 5 years. However, company posted loss in the last financial year and thin margins for the 6 months ended Sep-16 is a major concern. Investors would not get anything by investing in such low margin / loss making companies. As of now, investors should avoid such IPO.

Disclaimer: I do not have an 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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Ruby Cables IPO – What are the hidden factors in this IPO

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