Precision Camshafts IPO – Should you invest?
Precision Camshafts IPO – Should you invest?
Mumbai based, Precision Camshafts IPO would open for subscription on 27th January, 2016. Precision Camshafts Ltd one of the world’s leading manufacturer and supplier of camshafts, a critical engine component. It revenues grown at CAGR of 17% in last 5 years. It is a monopoly and has no peers in the business segment it operates. What are the positive factors of Precision Camshafts IPO? What are its hidden factors in Precision Camshafts IPO? In this article, I would review about Precision Camshafts Limited IPO.
About Precision Camshafts Limited
Precision Camshafts Ltd is one of the world’s leading manufacturers and supplier of camshafts, a critical engine component, in the passenger vehicle segment based on estimated global market share by volume according to the ICRA Research Report. Company supplies over 150 varieties of camshafts for passenger vehicles, tractors, light commercial vehicles and locomotive engine applications from its manufacturing facilities in Solapur, Maharashtra.
Issue details of Precision Camshafts IPO
- IPO opens: 27-Jan-2016
- IPO closes: 29-Jan-2016
- Face Value: Rs 10 per share
- Issue price band : Rs 180 to Rs 186 per share
- Minimum Shares: 80 shares and multiples of 80 shares there-of
- Minimum amount: Rs 14,400
- Issue size: Rs 410 Crores
- Lead Managers: SBI Capital Markets, HDFC Bank and IIFL Holdings Ltd
- Listing: BSE and NSE
- Download Precision Camshafts IPO Prospectus from NSE Website at this link
Purpose of the IPO:
1. Establishment of a machine shop for ductile iron camshafts at the EOU unit.
2. General corporate purposes.
3. Further, Company expects that the listing of the Equity Shares will enhance its visibility and its brand image among its existing and potential customers
Company Financials (reinstated and unconsolidated)
- Company generated revenue of Rs 277.28 Crores for the year ended Mar-11 and Rs 524.91 Crores for the year ended Mar-15. For 6 months ended Sep-15, company generated revenue of Rs 246.38 Crores.
- Company posted a profit of Rs 17.65 Crores for the year ended Mar-11 and Rs 63.58 Crores for the year ended Mar-2015. For 6 months ended Sep-15, company generated profit of Rs 31.45 Crores.
- Its reinstated EPS for FY 2015 is Rs 7.77 and last 3 years average EPS of Rs 5.30. It’s EPS for 6 months ended Sep-15 is 3.84.
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Reasons to invest Precision Camshafts IPO
- Its revenues have grown by 17% CAGR in last 5 years.
- It earned consistent margins of over 6% for 3 out of last 5 years. For FY14, profit dipped to 3%. For FY15 and 6 months ended Sep-15, it earned margins of over 12%.
- Leading supplier of camshafts for passenger vehicle engines in India and globally. It is virtual monopoly and niche player in Camshafts manufacturing segment.
- It has long term relationships with marquee global OEMs.
Reasons not to invest in Precision Camshafts IPO
- Company depends on a limited number of customers for significant portions of its revenues. The loss of one or more of its significant customers or significant reduction in production and sales of, or demand for its production from its significant customers may adversely affect its business, financial condition, result of operations and cash flows.
- They are subject to strict quality requirements and any failure to comply with quality standards may lead to cancellation of existing and future orders.
- Company inability to successfully diversify its product offerings may adversely affect its growth and negatively impact its profitability.
- A significant portion of its revenues are dependent on exports to their international customers. Any failure to fulfil the requirements of its international customers may adversely affect its revenues, result of operations and cash flows.
- Slowdown in the automotive sector, particularly the passenger vehicle market and any adverse changes in the conditions affecting these markets can adversely impact company business, results of operations, financial condition and cash flows.
- Other risk factors (Internal and external) can be viewed in prospectus Page no. 13 onwards.
Recommendation / Investment strategy:
- On the upper price band of Rs 186, based on FY2015 EPS of Rs 7.77 and last 3 years EPS of 5.33, its P/E Ratio works out to be between 24 and 35. There are no listed peers in this business segment, hence we cannot say whether issue price is reasonably priced or not.
- Precision Camshafts Limited revenues have grown by 17% CAGR in last 5 years. It is a virtual monopoly and niche player in business segment it operates. It holds long term orders from top global auto giants. It also generates healthy margins of over 12% in last 18 months. While, this is one of the best IPO to bet for short to long term period, one should also consider the current volatility in the stock market which can also drag down the listing price of this IPO. Personally, I would like to invest in such IPO. In case the listing price slipping during market volatility, I would add some more to my kitty to hold for short term to long term.
Disclaimer: I 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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Precision Camshafts IPO Review