Relicab Cable Manufacturing IPO – Should you invest?
Goa based, Relicab Cable Manufacturing IPO would open for subscription on 9th March, 2016. Relicab Cable Manufacturing Ltd is engaged in the business of manufacturing and marketing of PVC Compounds and Wires and Cables. Company earns Rs 11.94 Crores Revenues in FY2015. Are there any positive factors in Relicab Cable Manufacturing IPO? What are its hidden factors in Relicab Cable Manufacturing IPO? I would review Relicab Cable Manufacturing Limited IPO in this article.
About Relicab Cable Manufacturing Limited
Company is engaged in the business of manufacturing and marketing of PVC Compounds and Wires and Cables and have successfully developed a wide base of business network and made its presence in this industry since over 15 years. They manufacture wires and cables to provide cost-effective and quality solutions for various electrical connectivity requirements, mainly for the industrial segments. They are involved in manufacturing a complete array of wires and cables that are used in diverse sectors encompassing virtually all industries like telecom, electrical, automotive and household appliances and the new field of wind energy.
Issue details of Relicab Cable Manufacturing IPO
- IPO opens: 9-March-2016
- IPO closes: 14-March-2016
- Face Value: Rs 10 per share
- Issue price: Rs 20 per share
- Issue size: Rs 400.8 Lakhs
- Lead Managers: Aryaman Financial Services Limited
- Listing: BSE SME Platform
- Download Relicab Cable Manufacturing IPO Prospectus from BSE Website at this link.
Purpose of the IPO
1) Technological modifications and certain augmentations in the factory
2) Long Term Working Capital
3) Refundable Security Deposit for Factory Premises,
4) General Corporate Purposes
Company Financials (reinstated)
- Company generated revenue of Rs 1,564.71 Lakhs for the year ended Mar-11 and Rs 1,194.06 Lakhs for the year ended Mar-15. For 3 months ended Jun-15, it generated revenue of Rs 378.04 Lakhs.
- Company posted a profit of Rs 3.58 Lakhs for the year ended Mar-11 and profit of Rs 14.02 Lakhs for the year ended Mar-2015. For 3 months ended Jun-15, it generated profits of Rs 3.28 Lakhs.
- Its restated EPS for FY 2015 is Rs 1.13 and last 3 years average EPS of Rs 0.76.
Reasons to invest Relicab Cable Manufacturing IPO
Reasons not to invest in a Relicab Cable Manufacturing IPO
- Its revenues are in declining mode. It has grown at negative CAGR of -6.5% in last 5 years.
- It generates thin margins of 1.2%. 4 Out of last 5 financial years, it generated less than 0.5% of margins.
- There are outstanding legal proceedings involving Company, Promoters, Directors and its Promoter Group Entities.
- If they are not able to obtain, renew or maintain the statutory and regulatory permits and approvals required to operate its business it may have a material adverse effect on its business.
- Underutilization of capacity of its Existing Manufacturing Facilities or Proposed Project may adversely affect its business, results of operations and financial condition.
- Inventories and trade receivables form a major part of its current assets and net worth. Failure to manage its inventory and trade receivables could have an adverse effect on its net sales, profitability, cash flow and liquidity.
- Company has not entered into any long-term agreements with its suppliers for traded goods and raw materials and accordingly may face disruptions in supply from its current suppliers
- They intend to utilise Rs. 50 lakhs from the net proceeds of this issue to make payments to its Promoter Group entity towards a refundable security deposit for its factory premises which is owned by them. Out of Rs 4 Crores IPO proceeds, this amount of Rs 50 Lakhs goes to them, cannot be utilized for company future operational activities.
- Company has reported certain negative cash flows from its operating activity, investing activity and financing activities. Sustained negative cash flow could impact its growth and business.
- Minimum investment in this IPO is Rs 120,000 which makes this IPO as un-attractive.
- SME IPO’s are trading in low quantity. One may have liquidity issues.
- Other risk factors (Internal and external) can be viewed in prospectus Page no. 11 onwards.
Recommendation / Investment strategy
- On the issue price of Rs 20 and based on FY2015 EPS of Rs 1.13, its P/E Ratio works out to be 17.7. Similarly, based on last 3 years EPS of Rs 0.76, P/E Ratio works out to be 26.3. Means company is asking the issue price of Rs 20 in the P/E ratio of 17.7x to 26.3x. Its peers like Finolex Cables Ltd P/E ratio is 20.1 (Highest) and Torrent Cables is 17.9 (Lowest) and the industry average is 20. Hence, the issue price of Rs 20 is reasonably priced.
- There is nothing exciting in this company IPO. Its revenues are in declining mode. It generates thin margins of 1.2% in the last financial year. Investors should be cautious and should stay away from such IPO’s.
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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Relicab Cable Manufacturing IPO Review