M.D.Inducto Cast IPO – Should you subscribe?
M.D.Inducto Cast IPO opened for subscription yesterday, i.e. 30th June, 2015. M.D.Inducto Cast engaged in manufacturing of superior quality TMT Bars and Billets. It plans to raise Rs 17.23 Crores through this IPO. Company has increased revenues by almost 7 times in just 1 year. What are the positive factors in M.D.Inducto Cast Ltd IPO?. Should you invest in this M.D.Inducto Cast IPO? What are the risk factors to be considered before you invest in a such IPO’s?
About M.D.Inducto Cast Limited
MD Inducto Cast is engaged in manufacturing of billets and superior quality TMT Bars. All TMT Bars are made by 100% home made billets. Its manufacturing facility is located at Nesada, Sihor which is fully integrated and fully automated plant giving competitive edge in the industry. In addition to manufacturing, this company has recently introduced a franchise model of business in its operations. Currently it has contracted with 5 parties who manufactu and sell goods under its brand n “Rudra TMX”.
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Issue details of M.D.Inducto Cast IPO
- IPO opens: 30-Jun-2015
- IPO closes: 2-Jul-2015
- Face Value: Rs 10 per share
- Issue price: Rs 27 per share
- Minimum Shares: 4000 shares and in multiples of 4000 shares there-off
- Minimum amount: Rs 108,000
- Issue size: Rs 1,723 Lakhs
- Lead Managers: Pantomath Capital
- Listing: BSE SME
- Download M.D.Inducto Cast Limited IPO Prospectus from SEBI website here
Purpose of the IPO
- Working capital requirements
- Issue expenses.
Company Financials (reinstated)
- Company generated revenue of Rs 4,367 Lakh for the year ended Mar-13 and Rs 31,803 Lakhs for the year ended Mar-14. It earned revenue of Rs 33,332 Lakhs for 9 months ended Dec-14.
- Company posted a Profit of Rs 83.83 Lakhs for the year ended Mar-13 and a Profit of Rs 431.91 Lakhs for the year ended Mar-2014. Its profit is Rs 573.64 Lakhs for the 9 months ended Dec-2014.
- Its basic EPS for FY 2013-14 is Rs 4.1 and weighted Avg EPS of last 3 years is Rs 3.25.
Reasons to invest M.D.Inducto Cast IPO
- Good revenue growth in last 2 years. Revenues increased by almost 8 times in FY 2013-14 compared to the previous financial year. Even in FY2014-15, 9 months revenue growth is impressive.
Reasons not to invest in an M.D.Inducto Cast IPO
- Thin margins of 1.4% for FY 2013-14 and 1.7% for 9 months ended Dec-2014. Such thin margins would erode with a small increase in raw material.
- Company has limited operating history. Means, we cannot guess on how it would perform in the long run.
- Major revenues from Gujarat region only which is risky due to single location concentration.
- It is high volume, low margin business. Though it does Rs 333 Crores of business, margins are just at Rs 5.73 Crores.
- Cost of production is exposed to fluctuations in the prices of raw materials as well as its unavailability.
- The company has not complied with certain statutory regulations which may attract penalties.
- Dependence on imported raw materials may affect profitability.
- Minimum investment required is Rs 1.08 Lakhs to subscribe to this IPO.
- Other risk factors (Internal and external) can be viewed in prospectus Page no. 18 onwards.
Recommendation / Investment strategy
- At an issue price of Rs 27 and EPS for FY 2013-14 of Rs 4.1, P/E Ratio works out to be 6.59. At an issue price of Rs 27 and weighted average EPS of Rs 3.25, P/E Ratio works out to be 8.31.
- Means company is asking the price where P/E ratio is in between 6.59 and 8.31. The competitors lowest P/E ratio is 4.7 (Rathi Bars Ltd) and Highest is 79.73 (Gallant Ispat Ltd) and the industry average is 34.05. Hence the issue price is reasonably priced.
- M.D.Inducto Cast Limited revenues show good improvement in last 2 years. Thin margins for high volume business and other risk factors indicated above are negative factors. As a moderate to high risk taker, I would personally like to invest if the profit margins are improved in next 2-3 years. However, high risk investors with 2-3 years investment horizon can invest in this IPO considering the risk factors indicated above.
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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M.D.Inducto Cast IPO – Should you subscribe