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Review By MLR Securities Private Ltd on May 5, 2011
Issue Date: 6th May - 9th May
Price Range: INR 80-85
Issue Size: INR 36.9 Cr
Mcap: INR 102-108 Cr
Grey Market Premium: INR 3-3.5
IPO Grading: CARE IPO Grade 3
Promoter Holding: 56% (Post Issue)
BRLM: Arihant Capital Markets
Sanghvi forgings and Engineering incorporated in 1989, is a Gujarat based manufacturer and exporter of forging products for the non-automotive sector. The current capacity of the company is 3,600 MTPA for manufacturing of forged flanges and precision machined components. The company's product profile caters to industries like Oil & Gas, Power, Ship Building and Defence.
Mr. Babulal Sanghvi is the promoter of the company along with his three sons, Mr. Jayanti B. Sanghvi, Mr. Naresh B.Sanghvi and Mr. Vikram B. Sanghvi. Mr. Babulal Sanghvi has experience of more then two decades in the forging industry.
The company proposes to expand its current capacity by 15,000 MTPA by FY13. The total project cost of the expansion is Rs 120 Cr.
Sources of Finance for the proposed capacity expansion
Gross Proceeds of the issue - Rs 42.5 Cr
Term Loans - Rs 72.0 Cr
Unsecured Loans - Rs 0.64 Cr
Internal Accruals - Rs 5.3 Cr
The company's market cap is coming to around Rs 102-108 Cr on a price band of Rs 80-85. The company is asking for a P/E of 26-27 on an annuliased EPS of FY11. P/BV of the company is coming to around Rs 1.4-1.5 on the lower and upper price band of Rs 80-85. The valuations are quite expensive when compared to other other players like MM forgings, Ramkrishna Forgings, Ahmdenagar Forgings are trading on an average TTM P/E of 7.3. We believe the asking price does not justify its size of operations.
Investment Rationale
We recommend investors to Avoid the issue as the company is asking for a valuation of 26-27 times its FY11 annualized EPS which is very high considering its size of operations when other players of the same size like MM Forgings, Ramkrishna Forgings, Ahmednagar Forgings are available at an average valuations of 7.3
Review By MLR Securities Private Ltd on May 5, 2011
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