Madhav Copper IPO – Revenue up 31 times in 3 years – Should you subscribe?

Madhav Copper Limited IPO ReviewMadhav Copper IPO – Revenue up 31 times in 3 years – Should you subscribe?


Gujarat based, Madhav Copper IPO would open for subscription on 23rd January, 2017.  Madhav Copper Ltd is engaged in the business of enamelled, copper rod profile and poly-wrap submersible winding wires suitable for industry application in transformers, motors etc., The company revenues grown by 31 times in 3 years. This is attracting investors attention. Its profits increased from 1.8% to 2.5% in last 2.5 years. It is getting listed on NSE Emerge Platform. What are the positive factors in Madhav Copper IPO? What are the hidden factors about this IPO? Should you invest in this Madhav Copper SME IPO?

I have stopped reviewing SME IPO’s in the last few months. However due to large demand from readers, I have restarted SME IPO Reviews again. These are high risk investments, hence should be invested with due care.

About Madhav Copper Limited


Company offers enamelled, copper rod profile and poly-wrap submersible winding wires suitable for industry application in transformers, motors, alternators, contactors, and relays. Company wires are also suitable for use in high speed coil winding machines. The copper conductors are manufactured from copper and insulated with high thermal class engineered insulation material, which provides dielectric properties and resistance to stress cracking.

Issue details of Madhav Copper IPO


  • IPO opens: 23-Jan-2017
  • IPO closes: 27-Jan-2017
  • Face Value: Rs 10 per share
  • Issue price: Rs 81 per share
  • Issue size: Rs 4.25 Crores
  • Market lot: 1,600 shares and in multiples of 1,600 shares therein
  • Minimum investment: Rs 129,600
  • Lead Managers: Pantomath Capital Advisors
  • Listing: NSE Emerge Platform
  • Download Madhav Copper IPO Prospectus from SEBI Website at this link.

Purpose of the Madhav Copper IPO


1. Working capital requirements

2. General Corporate Purpose;

3. Listing benefits

Company Financials (reinstated)


  • Company generated revenue of Rs 112 Lakhs for the year ended Mar-14 and Rs 3,563 Lakhs for the year ended Mar-16. For 6 months ended Sep-16, it generated revenue of 2,368 Lakhs.
  • Company posted a loss of Rs  42 Lakhs for the year ended Mar-14 and profit of Rs 66 Lakhs for the year ended Mar-2016. For 6 months ended Sep-16, it generated a profit of Rs 58.2 Lakhs.
  • Its restated EPS for FY 2016 is Rs 4.4 and last 3 years average EPS Rs 2.06.

Madhav Copper Limited IPO - Financials

Reasons to invest Madhav Copper IPO


  • Revenues grown from Rs 112 Lakhs for FY14 to Rs 3,563 Lakhs for FY16 indicating jump in revenue by 31 times.
  • Good improvement in margins in last 3 years . It posted 1.8% margins for FY15 and 1.9% for FY16. It generated 2.5% margins for 6 months ended Sep-16.  However, company posted loss for FY14 i.e first year of its operations.

Reasons not to invest in Madhav Copper IPO


  • Company has limited operating history. It started its operations for FY14 and existing for just 3.5 years. Investors should invest in companies that are existing for long term which are performing good.
  • Company have not entered into any agreement in respect of long term supply for raw materials required by them and as such Company are susceptible to fluctuations in the cost of raw materials.
  • Fluctuation in exchange rates of Rupees and U.S. Dollars could affect its financial condition and results of operations.
  • Company industry is competitive and increased competitive pressure may adversely affect the results of its operations.
  • Company have significant power requirements and any disruption of power facilities may affect its manufacturing processes adversely; impacting its results of operations and financial condition.
  • There is a rising trend of substituting Copper wires by Aluminium wires due to the latter‟s improved and advantageous characteristics; which may pose a threat to the core business of the Company, impacting the overall profitability.
  • Company require high working capital for smooth day to day operations of business and any discontinuance or its inability to acquire adequate working capital timely and on favourable terms at a future date, may have an adverse effect on its operations, profitability and growth prospects.
  • Company have contingent liabilities and company financial condition could be adversely affected if any of these contingent liabilities materializes.
  • Company have a limited operating history, which may makes it difficult to evaluate its past performance and prospects.
  • Company has negative cash flow in its operating activities as Companyll as investing activities in the past 3 years, details of which are given below. Sustained negative cash flow could impact its growth and business
  • Its top 5 customers constitute around 87.79% and top 10 customers contribute more than 95.24% of its revenue from operations.
  • Company generate majority of its sales from the operations in Gujarat and any adverse developments affecting its operations in Gujarat could have an adverse impact on its revenue and results of operations
  • Company and its Group companies have received few income tax notices which are currently pending. If these proceedings are decided against the company or group companies, same may adversely affect the Company
  • Minimum investment of Rs 1.3 Lakhs in this IPO makes it unattractive.
  • SME IPO’s are trading in low quantity and quick liquidity could be an issue.
  • Other risk factors (Internal and external) can be viewed in the draft prospectus from Page no. 17 onwards.

Recommendation / Investment strategy:


On the issue price of Rs 81 and on FY16 EPS of Rs 4.4, P/E ratio works out to be 18.4x. Similarly, on last 3 years EPS of 2.06, P/E Ratio works out to be 39.3x. Means company is asking issue price for
P/E ratio between 18.4x and 39x. Its competitors, Ram Ratna Wires is trading at P/E ratio of 16.6x and Precision wires is trading at P/E ratio of 16.34x and industry average is 16.05x. Hence, I feel the Madhav Copper IPO issue price of Rs 81 per share is highly priced.

Company revenue grew 31 times in last 3 years. It margins are improving year on year. Issue price is on higher side. High risk factors can invest in this IPO with 2-3 years time horizon. Investors may or may not get listing benefits. After listing if it is available at discounted price, one can accumulate it. One should consider the risk factors indicated above before investing in these SME 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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Suresh

Madhav Copper IPO Review

4 comments

  • Sandy

    which DP accout provider allows investing in SME IPO? I have icicidirect but I don't see any SME IPO listed there. Please suggest 

  • Syed Maqsood

    Dear Sureshji,

    Hi,

    I am working in Riyadh, Saudi Arabia. I want invest in Mutual Munds through DIRECT PLAN, plz advise me how I can invest through direct plan while working in Saudi Arabia. I have already NRE account NRO account and demat account in HDFC Bank.

    Your prompt reply will be highly appreciated…

     

  • Raj Kumar

    Dear  Mr.Suresh

    compare to this Ram ratna is best because of low PE and low investment, techanically strong 

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