Emkay Taps and Cutting Tools IPO – Should you invest?
Emkay Taps and Cutting Tools IPO will open for subscription 27th July 2015. Emkay Taps and Cutting Tools Limited are mainly engaged into the business of manufacturing and sale of cutting tools. Its revenues grown by 50%, in last 5 years. It earned 26.5% profits for the 10 months ended Jan-2015. It would be listed on NSE SME platform which is another unique feature. What are the positive factors of Emkay Taps and Cutting Tools Limited IPO? What are its risk factors? Should you invest in Emkay Taps and Cutting Tools IPO?
About Emkay Taps and Cutting Tools Limited
Emkay Taps & Cutting Tools Ltd is engaged in manufacturing and sale of cutting tools and also power generation through its wind mills in Rajasthan and Karnataka. Company sells its varied range of products under the registered brand name ― EMKAY TOOLS. Its advancement in cutting tool designs and production have resulted in very high quality thread cutting taps, setting new standards in productivity and performance in taps.
Issue details of Emkay Taps and Cutting Tools IPO
- IPO opens: 27-Jul-2015
- IPO closes: 30-Jul-2015
- Face Value: Rs 10 per share
- Issue price: Rs 330 per share
- Minimum Shares: 400 shares and in multiples of 400 shares there-off
- Minimum amount: Rs 132,000
- Issue size: Rs 15.55 Crores
- Lead Managers: Hem Securities Ltd
- Listing: NSE SME (NSE Emerge platform)
- Download Emkay Taps and Cutting Tools Limited IPO Prospectus from SEBI Website at this link
Purpose of the IPO
1. Benefits of listing on stock exchange.
2. Carry out of sale of 4.71 Lakh shares of company by selling share holders. Company would not get any money out of this IPO.
Company Financials (reinstated)
1) Company generated revenue of Rs 19.09 Crores for the year ended Mar-10 and Rs 30.01 Crores for the year ended Mar-14. It has generated revenue of Rs 32.54 Crores for 10 months ended Jan-2015.
2) Company posted a Profit of Rs 4.19 Crores for the year ended Mar-10 and a Profit of Rs 5.74 Crores for the year ended Mar-2014. It has generated profit of Rs 8.64 Crores for 10 months ended Jan-2015
3) Its EPS for FY 2013-14 is Rs 30 and 3 years weighted Avg EPS is Rs 30.61. Its EPS for the 10 months ended Jan-2015 is Rs 46.49.
Reasons to invest Emkay Taps and Cutting Tools IPO
- Good revenue growth in last 5 years. However in last 2 years, company has posted negative growth in FY 2013 and FY 2014. However 10 months ended FY15, its revenues started moving up again.
- Good profits of 19% for FY 2014. It has posted 26% profits for 10 months ended FY2015. All SME companies are posting single digit profits.
Reasons not to invest in an Emkay Taps and Cutting Tools IPO
- Company is involved in certain legal proceedings, which if determined, against it could have adverse impact on the business and financial results of the Company.
- Company is dependent on one of its group Company for job work up to the initial stage of its manufacturing activities. Any delay in completion of manufacturing by the group Company may adversely affect its business.
- Company procures its raw materials from a selected few suppliers for its raw material requirements. Any disruption in supply of raw materials from these suppliers will adversely affect company operations.
- Company Business is substantially dependent on limited number of customers for a significant portion of its revenues.
- The loss of any significant clients or an adverse change in the customer relationship may have a material and adverse effect on its business and results of operations
- There can be a potential conflict of interest owing to common business objects between the Company and its group Companies.
- Company had entered into various transactions with its Promoters, Promoter Group, Directors and their Relatives and Group Companies in the past and may continue to do so in future as well which may adversely affect its competitive edge and bargaining power and may involve a potential conflict of interest
- They have not entered into any long term supply agreement for the major raw material required for manufacturing of its products. Also, volatility in the prices and non availability of this raw material may have an adverse impact on company business.
- Company financial condition could be affected if any of the customers of the Company does not honor the payment terms, makes any delay or default in the outstanding payments.
- One of its Group Company has incurred loss within the last three financial years.
- Company has experienced negative cash flows in previous years. Any operating losses or negative cash flows in the future could adversely affect its results of operations and financial condition.
- Company is involved in the export of products manufactured by it to several foreign countries. As a result, they are subject to risks arising from exchange rate fluctuations.
- Minimum investment required is Rs 1.32 Lakhs to subscribe to this IPO.
- Other risk factors (Internal and external) can be viewed in prospectus Page no. 13 onwards.
Recommendation / Investment strategy
- At an issue price of Rs 330 and EPS for FY 2014-15 of Rs 30, P/E Ratio works out to be 11. At an issue price of Rs 330 and weighted average EPS of Rs 30.61, P/E Ratio works out to be 11. Means, the company is asking issue price in between 10.78 and 11 P/E Ratio. There are no listed companies doing similar business, hence we cannot say whether issue price is overpriced or under priced.
- Emkay Taps and Cutting Tools Limited revenues shown good improvement in last 5 years. While FY13 and FY 14 revenue were in little downtrend, 10 months ended FY15 revenues are again in uptrend. It generated good profits of 19% in FY2014 and 26% for 10 months of FY2015. Investors can subscribe to this IPO considering these points.
Disclaimer: I have an interest in investing in this IPO (depending on my cash flow). 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 high return investment options.
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Emkay Taps and Cutting Tools IPO