Ultracab India IPO (SME) – Can we invest
There are flood of regular and SME IPO’s coming in Sep-2014. Ultracab India Limited (SME) is coming up with an IPO this week. Ultracab India is leading manufacturers and exporters of electric wires and cables in India. Revenues and profits show good improvement in the last few years. Can we bet on Ultracab India IPO? What risk factors investors should consider if they want to invest in Ultracab India Limited (SME) IPO?
About Ultracab India Limited
Ultracab Limited is established in 2007 and is engaged in the manufacture and export of wires and cables in India. This company has been working in this domain for more than 6 years. They indicate that they are using advanced technology and machineries for manufacturing quality products. They started the business with PVC cables and wires in India which are now supplied across different networks worldwide. They produce durable and reliable cables and wires, and its products have earned reputation in the market. Apart from India, their quality products are sold in countries like UK, UAE, Africa, Singapore, Uganda etc. Their manufacturing facility is situated in Shapar (Rajkot, Gujarat) India. Their facility involves modern technology, tools, high-tech machines which spin out the quality standard of cables.
Issue details of Ultracab India IPO
- IPO opens: 15-Sep-2014
- IPO closes: 23-Sep-2014
- Face Value: Rs 10 per share
- Price Band: Rs 36 per share
- Minimum shares to be applied: 3,000 shares and in multiples of 3,000
- Minimum investment: Rs 108,000
- Lead Managers: Pantomath Capital Advisors Private Limited
- Listing: BSE SME
- Download Ultracab India IPO Prospectus from SEBI website here
Purpose of the IPO: The funds would be used for the following purposes.
- Working capital requirements
- Issue expenses
- General corporate purpose
- The company generated revenue of Rs 1066 Lakhs for the year ended Mar-10 and Rs 3,181 Lakhs for the year ended Mar-14.
- Company posted a profit of Rs 14.66 Lakhs for the year ended Mar-10 and a Profit of Rs 82.78 Lakhs for the year ended Mar-2014.
Reasons to invest Ultracab India IPO
- Good annualized growth of 32% (average) in last 5 years.
- Profit margins have increased from 1.4% of revenue (FY 10) to 2.6% of revenues (FY14)
Reasons not to invest in an Ultracab India IPO
- The capacity of the manufacturing facility is not fully utilized. Since such time, full fixed cost need to be absorbed.
- It has negative cash flows in last 5 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.
- Company is involved in legal proceedings. Any adverse decision against the company would affect the business.
- Company requires significant working capital for a continued growth. Inability to meet the working capital requirement would slow down the business growth.
- Its Group Company, Fusion Pumps Private Limited has incurred losses for financial year 2012-13.
- Company has unsecured loans which are payable on demand.
Recommendation / Investment strategy
- Based on EPS of FY2014 of Rs 1.6, the PE Ratio would work out to be 22. Based on average EPS of last 3 years of Rs 1.08, the PE Ratio would work out to be 33.20. Means for the issue price of Rs 36, the PE Ratio asked is in between 22 and 33.20. Its industry average is at 24 and Highest is 32.5 (V-Guard Industries Limited) and the lowest is 15.34 (Cord Cables Industries Limited), hence PE ratio of 22-33 being asked for the issue price of Rs 36 is high.
- Company revenues are growing consistently. However, profits are still thin. Issue price also looks high.
- We need to observe for a couple of more quarters and in case profits are showing improvement, investors can subscribe for these shares. As of now, investors can stay away from an Ultracab India Limited IPO. Personally, I would not be investing in this IPO.
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Ultracab India IPO
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