Shankara Building Products IPO – Should you invest?

Shankara Building Products IPO Review-minShankara Building Products IPO – Should you invest?


Bengaluru based, Shankara Building Products IPO would open for subscription on 22nd March, 2017. Shankara Building Products Ltd is the leading organised retailers of home improvement and building products in India. Its revenues grown at 6.4% CAGR in last 5 years. It earned 0.6% profits in FY16. Some of the leading financial websites giving very high positive about this IPO. What are the positive factors in Shankara Building Products IPO? What are the hidden factors in Shankara Building Products Limited IPO?  In this article, I would provide some interesting insights and hidden facts about Shankara Building Products IPO.

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About Shankara Building Products Limited


They are one of the leading organised retailers of home improvement and building products in India based on number of stores, operating under the trade name Shankara BuildPro. As on August 31, 2016, they operated 98 Shankara BuildPro stores spread across 10 states in India. As on September 24, 2016, they operated 100 Shankara BuildPro stores spread across 10 states in India. They cater to a large customer base across various end-user segments in urban and semi-urban markets through its multi-channel sales approach, processing facilities, supply chain and logistics capabilities.

Issue details of Shankara Building Products IPO


  • IPO opens: 22-Mar-2017
  • IPO closes: 24-Mar-2017
  • Face Value: Rs 10 per share
  • Issue price band: Rs 440 to Rs 460 per share
  • Issue size: Rs 350 Crores
  • Market lot: 32 shares and in multiple of 32 shares there-of
  • Minimum investment: Rs 14,080 on lower price band
  • Leading Managers: Equirus Capital, IDFC Bank and HDFC Bank
  • Listing: BSE / NSE
  • Download Shankara Building Products IPO DRHP Prospectus at this link.

Objects of the Shankara Building Products Limited IPO issue


1) Offer for Sale: Company will not receive any proceeds from the Offer for Sale.

2) Repayment or pre-payment of loans of Company and VPSPL; and

3) General corporate purposes.

Company Financials (reinstated-standalone)


  • The company generated revenue of Rs 1,385.5 Crores for the year ended Mar-12 and Rs 1,775 Crores for the year ended Mar-16.
  • The company posted a profit of Rs 27.7 Crores for the year ended Mar-12 and profit of Rs 11.3 Crores for the year ended Mar-16.
  • Its standalone restated basic EPS for FY ending Mar-16 is Rs 5.18 and last 3 years EPS was Rs 4.71.

Shankara Building Products IPO - Financials-min

What are Shankara Building Products Key Strenghts?


  • Providing its customers a unique experience by offering a comprehensive range of home improvement and building products
  • Its strong vendor network and relationship built over two decades
  • Its presence across the entire value chain
  • Robust back-end infrastructure ensuring efficient supply chain management

Reasons to invest in Shankara Building Products IPO


Nil

Reasons not to invest in a Shankara Building Products Limited IPO


  • Low revenue growth at 6.4% CAGR.
  • Though it earns thousands of Crores of revenue, it just earns 0.6% as profits. These can be vanished with small %age of increase of costs.
  • There are various proceedings involving Company and certain of its Subsidiaries, which if determined against it or them, may have an adverse effect on its business.
  • They may not be able to identify or effectively respond to consumer needs, expectations or trends in a timely manner, which could adversely affect its relationship with its customers, its reputation, the demand for its products and services, its market share and its prospects.
  • Company success depends on the value, perception and product quality associated with its retail stores and any negative publicity of its products, its retail stores or its processing facilities may adversely impact its brand equity, sales and results of operations.
  • Company success depends upon its ability to attract, develop and retain trained store representatives while also controlling its labour costs.
  • They are subject to payment-related risks that could increase its operating costs, expose them to delays, fraud, litigation, subject us to potential liability and potentially impact the goodwill of its stores. Further, losses on account of shrinkage may have a negative impact on its profitability.
  • They have had instances of non-compliances in relation to regulatory filings to be made with the RoC and the RBI under applicable law.
  • Uncertainty regarding the housing market, real estate prices, economic conditions and other factors beyond its  control could adversely affect demand for its products and services, its costs of doing business and its financial performance.
  • They do not have definitive agreements with a majority of its vendors for supply of its raw materials and retail products which may adversely affect its business and results of operations.
  • Other risk factors (Internal and external) can be viewed in the prospectus.

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Recommendation / Investment strategy – Shankara Building Products IPO


  • On the upper price band of Rs 460 and on FY16 EPS of Rs 5.18, P/E ratio works out to 88.8x. Even based on last 3 years EPS of Rs 4.71, P/E ratio works out to be 97.6x. There are no listed peers to compare. However considering P/E ratio, it looks the issue price is highly priced.   
  • Company revenues grew at 6% CAGR in last 5 years. It earned thin profits of 0.6% in FY16 and 0.2% in FY15. Its issue price is also highly priced. There is nothing exciting in this IPO. Some of the leading financial websites are writing great reviews about it. Investors should be cautious and stay away from such IPOs.

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. Please consult your investment advisor before you invest in such high risk investment options.

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Suresh

Shankara Building Products IPO – Should you invest

4 comments

  • Ram

    Thanks Suresh for the Detailed analysis. Better to stay away from this compnay. 

     

  • s

    Kindly do a better job, you have considered stand alone results in valuation and not consolidated

  • Septa

    U r getting this wrong you are based your review on standalone number when the IPO is for consolidate enitity. 

    Because consolidated financial statements present an aggregated look at the financial position of a SBP and its subsidiaries, they let you gauge the overall health of an entire group of companies as opposed to one company's standalone position.

  • Vikas Tripathi

    Thanks for advice

    Kindly suggest some shares in microcap and midcap category for long term investment, as I m new to share market and want to invest in shares and mutual funds

    Vikas TRIPATHI

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