Loha Ispaat IPO – You can invest
Mumbai based Loha Ispaat is coming up with an IPO next week. Loha Ispaat IPO would open for subscription on 11th March, 2014 and issuing shares worth Rs 205 Crores. Loha Ispaat Limited revenues grown at CAGR of 31.13% in the last 4 years indicating strong growth. What should you do on Loha Ispaat IPO? Can you bet on this IPO by investing or should we avoid it?
About Loha Ispaat Limited
Mumbai based Loha Ispaat is one of the organized steel service centers in India having client base of 500 customers. This makes it as a major player in flat steel product (HR, CR Coils, Sheets & Plates) in India.
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Issue details of Loha Ispaat IPO
- IPO opens: 11-Mar-2014
- IPO closes: 20-Mar-2014
- Face value: Rs 10 per share
- Issue price: Rs 77 to Rs 80 per share (Includes Premium)
- Minimum bid: 175 shares and in multiples of 175 lot
- Minimum investment: Rs 13,475
- Maximum investment by retail investors: 2,450 shares
- Listing: BSE and NSE
- Lead Manager: Aryaman Financial Services Limited
- Download Loha Ispaat IPO Prospectus from SEBI Website
The purpose of the IPO: The funds would be used for the following purposes.
- Working capital requirement post expansion of Khopoli and Taloja Plants
- Funding for general corporate purpose.
The company has posted revenue of Rs 15,237.57 Mn for the year ended Mar-2009 and Rs 34,357.24 for the year ended Mar-2013. First 6 months of this financial it made a revenue of Rs 20,244.10 Mn.
The company has posted a profit of Rs 459.74 Mn for the year ended Mar-09 and Rs 704.44 Mn for the year ended Mar-2013. First 6 months of this financial year (2013-14), it made a profit of Rs 389.10 Mn.
Reasons to invest Loha Ispaat IPO
- Good revenue growth in last 4 years at CAGR of 31.13%
- Good, profitable growth in last 4 years at CAGR of 15.29%
- CARE rated this Loha Ispaat IPO as “Grade-3” indicating average fundamentals (3 out of 5 grading)
Reasons not to invest in Loha Ispaat IPO
- It runs on low margins of 2% to 2.5%.
- Its volumes are very high, but margins are low.
- Steel business in India is cyclical in nature. This business can effect due to global economic conditions.
- Delay in the current expansion at Khopoli and Taloja plants can affect its future growth.
- It has a negative cash flow in 2010, 2011 and 2012.
Recommendation / Investment strategy:
- Average EPS for the last 3 years is Rs 8.50. At issue price of Rs 77 to Rs 80, this translates to a P/E ratio of 9 to 9.40. Based on last financial year 2012-13 EPS of Rs 10.14, P/E ratio works out to be 7.6 to 7.90. There are no listed competitors who are in similar business for comparison, hence we cannot say whether the issue price is high or low.
- This company is showing strong growth in revenues. Yes, the steel industry runs on low margins, hence this company too. This company is able to manage and come out some of the negative points indicated above in the last 3 years (like negative cash flows). Care rated this as “Average fundamentals”. Considering all the points, I am positive towards this IPO and recommend to invest to invest for 1 to 3 years period. Yes, one should consider risk factors before investing in such IPO.
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Loha Ispaat IPO