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Innoventive Industries Ltd IPO Review (Avoid)

Review By MLR Securities Private Ltd on April 27, 2011

Issue Date: 26-29th April
Price Range: INR 117-120
Issue Size: INR 2195.8 mn
Mcap: INR 7000/7123 mn
Market Lot: 50 Shares
IPO Grading: ICRA IPO Grade 3
Promoter Holding: 45% (Post Issue)
BRLM: Axis Bank, Avendus

Innoventive is engaged in the manufacturing and sale of precision steel tubes, tubular components, auto components, machined components and other steel products which find application in diverse industrial sectors such as transportation, oil & gas, power, farm equipments and general engineering. They have six manufacturing facilities located across Pune and Silvassa.

The company is promoted by Chandu Chavan, Ravindra Katre and Sanjay Waghulade. Mr. Chavan and Katre previously worked at Bajaj Auto which is now their largest client accounting for 20% of sales. The top 10 clients form 50% of current sales. Steel coils are the key raw material which are acquired from Essar Steel, Ispat Industries and other major manufacturers.

A pre-IPO placement of 260mn shares was done to Standard Chartered's PE fund at INR 117 while the PE fund bought out the stake of a member of the promoter group at INR 99.7. Kavos Capital, a SPV setup by the PE fund India 2020 holds close to 804mn shares bought at an average of INR 62.2.

Financials & Valuations

  • The EBITDA margin currently at 27% will narrow by around 5% as benefits from Govt of Maharashtra's Mega Project policy expire over the next few years
  • The stock is fairly valued at an EV of 6.4 x annualized 9mthFY11 EBITDA and P/E of 13 at the price range of INR 117-120

Conclusion / Investment Strategy

Innoventive Industries is looking to raise equity to expand capacity of CEW tubes from 28,785 MT to 76,701 MT and repay term debt. We believe that investors can avoid the issue as it is fairly priced at an EV of 6.4x annualized EBITDA. Near term equity dilution will weigh on earnings if there are delays in completion of its ambitious capex plan by FY12.

Reviewer recommends Avoid to the issue.

Review By MLR Securities Private Ltd on April 27, 2011