Bansal Roofing Products IPO (SME)-Should you subscribe
After Oasis Tradelink IPO, one more Gujarat based company Bansal Roofing Products IPO is going to hit the market on 26th June, 2014. Bansal Roofing Products Limited revenues jumped by 24 times in FY 2012-13 compared to its previous financial year. It has reduced risk in business from Top-10 customers from 90% dependency in FY 2012-13 to 35% for 9 months ended Dec-2013. How Bansal Roofing Products IPO looking ? What are its positives? How risk is Bansal Roofing IPO from an investor's perspective?
About Bansal Roofing Products Limited
Bansal Roofing Products is a manufacturer of roofing sheets and roofing accessories such as Color Coated Roof Sheets, FRP Roof Sheets, Polycarbonate Sheets. They also manufacture Eco Ventilators and other miscellaneous Roofing Accessories and provide all roofing solutions to customers, under one roof. The company believes that they have built domain expertise in roofing solutions in a short span which has contributed to their business growth. Promoters have been associated with roofing industry since more than a decade.
Issue details of Bansal Roofing Products IPO
- IPO opens: 26-June-2014
- IPO closes: 30-June-2014
- Face value: Rs 10 per share
- Issue price: Rs 30 per share
- Minimum investment: Rs 120,000
- Minimum shares to be applied: 4,000 shares and in multiples of 4,000 shares there-of
- Total shares to open for subscription: 6.8 Lakh shares
- Total Issue size: Rs 2.04 Crores
- Lead Managers: Hem Securities Limited
- Listing: BSE SME platform
- Download Bansal Roofing Products IPO Prospectus from SEBI website here
Purpose of the IPO: The funds would be used for the following purposes.
- To meet Long Term Working Capital Requirement.
- General Corporate Purposes.
- To Meet the Issue Expenses
- Since FY 2009 to FY2011 have thin revenues for this company, let us not compare them. The company has posted revenue of Rs 70.8 Lakhs for the year ended Mar-2012 and Rs 1715.50 Lakhs for the year ended Mar-2013, indicating a strong growth of 2,300% in 1 year. First 9 months of this financial year (ended Dec-2013) it made revenue of Rs 1411.6 Lakhs.
- Company posted a Loss of Rs 5.9 Lakhs for the year ended Mar-12 and a profit of Rs 64.1 Lakhs for the year ended Mar-2013. First 9 months of this financial year (ended Dec-2013) it made a profit of Rs 30.8 Lakhs.
Reasons to invest Bansal Roofing Products IPO
- Strong revenue growth of 24 times in the last financial year ending Mar-2013 compared to year ending Mar-2012. Considering the growth of 9 months ended Dec-2013, it is expected to post 10% growth in FY14 compared to previous financial year(in the absence of last quarter revenues, this assumption is made)
- It made 3.7% margins in FY 2012-13 and 2.2% for 9 months ended in FY 2013-14. All SME’s which came for IPO’s are earning similar margins which I felt is comparable though low.
- It has reduced its dependency in terms of revenues from top-10 customers. Its revenues from top-10 customers for the year ended Mar-2013 was 90%, which is reduced to 35% for 9 months ended Dec-2013.
Reasons not to invest in an Bansal Roofing Products IPO
- It incurred loss in the financial year ending Mar-2012 (Rs 5.9 Lakhs)
- Promoter and one of the promoter group entities are involved in certain legal proceedings. If determined, against above of them, it could adversely impact on business and financial performance of the company
- Company has taken Rs 200 Lakhs of cash credit from SBI, which includes several restrictive covenants for which prior bank approval is required. Failure to adhere to them or non-compliance can result in cancellation of it which would affect its business operations.
- It has negative cash flows in last 3 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.
- Promoter group entities are in similar business and promoters can favor such entities
- One of the promoter has given an unsecured loan of Rs 82 Lakhs which is payable on demand. If the promoter demands, this needs to be paid immediately and cash flow of the company can impact.
- Business is focused in Gujarat only which has limited scope for expansion.
- 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.
Recommendation / Investment strategy
- On an issue price of Rs 30, based on FY 2013 EPS of Rs 36.35, P/E Ratio works out to be 0.83 times. Based on last 3 years Avg EPS of Rs 15.92, P/E ratio works out to be 1.88. There is no listed competitor in a similar business to compare whether the issue price is high or low. Its NAV post this issue would be Rs 18.02. However, looking at the P/E ratio of < 2, I feel the issue price is not expensive.
- Bansal Roofing products IPO has several positive and negative factors. Strong growth in revenue, good business strategy which helped to reduce the risk in top-10 customers, etc. On the other side, it has several negative factors, including that it made a loss in business for the year ending Mar-2012. I feel we need to see a couple of more quarters, wait and watch its performance and take a call on the investment in such stocks. In coming quarters, if the margins are improved consistently for a couple of quarters, one can look to invest in such shares.
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Bansal Roofing Products IPO (SME)