Review By Dilip Davda on Jan 21, 2019
• The company is engaged in manufacturing and trading of ERW MS/HR Coils etc.
• Book building IPO to fund working capital and general corpus needs.
• Top line shown growing trend with inconsistency in bottom line.
• Issue is priced very aggressively at a P/E of around 34.
Surani Steel Tubes Ltd. (SSTL) a Vinayak Group company is engaged in the business of manufacturing of Electric Resistance Welding Mild Steel (ERW MS) pipes (round, square and rectangular hollow sections) in various specifications, sizes ranging from 20NB to 100 NB and also in the trading of Hot Rolled Coil (HR Coil) and HR slit coils. It caters to architectural, infrastructural, industrial and engineering industry needs of such products. It has a net of over 300 dealers located across Gujarat for marketing of its products. It also generates revenue from the sale of scraps. SSTL has ISO 9001:2015 certification for manufacturing and IS 4923:1997 and IS 1161:2014 quality standard license from BIS. It has at present installed capacity of 25000 MT per annum.
ISSUE DETAILS/CAPITAL HISTORY:
To part finance its working capital and general corpus fund needs, SSTL is coming out with a maiden IPO of 2484000 equity shares of Rs. 10 each via book building issue. It has fixed a price band of Rs. 51-52 per share. SSTL mulls mobilizing Rs. 12.67 cr. to Rs. 12.92 cr. (based on lower and upper price bands). Issue opens for subscription on 25.01.19 and will close on 29.01.19. Minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed o NSE SME Emerge. Issue constitutes 29.99% of fully diluted post issue equity of the company.
Issue is solely lead managed by Pantomath Capital Advisors Pvt. Ltd. while Link Intime India Pvt. Ltd. is the registrar to the issue. Having issued initial equity at par, it raised further equity at a price of Rs. 50 per share on 26.03.18. It has also issued bonus shares in the ratio of 1 for 1 on 10.03.2018. Offer document has not shown the Average cost of acquisition of shares by the promoters. (LM has left this portion for workout by the investors as it has stated that it could be lower than the floor price). Post issue its current paid up equity capital of Rs. 5.80 cr. will stand enhanced to Rs. 8.28 cr.
On financial performance front, for last three fiscals SSTL has posted turnover/net profits of Rs. 68.46 cr. / Rs. 1.10 cr. (FY16), Rs. 76.70 cr. / Rs. 1.00 cr. (FY17) and Rs. 100.80 cr./ Rs. 1.72 cr. (FY18). For first four months of FY19 it has earned net profit of Rs. 0.41 cr. on a turnover of Rs. 36.14 cr. For last three fiscals it has posted an average EPS of Rs. 2.75 and an average RoNW of 20.33%. Issue is priced at a P/BV of 2.79 based on its NAV of Rs. 18.65 as on 31.07.18. If we annualize FY19 earnings so far and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 34, thus it is exorbitantly priced against industry average of 18 P/E.
COMPARE WITH LISTED PEERS:
As per offer documents it has shown Rama Steel Tube, Hi-Tech Pipes and APL Apollo Tubes as its listed peers that are currently trading at a P/Es of around 22, 12 and 24 (as on 21.01.2019 closing). However, they are not strictly comparable on an apple to apple basis.
LEAD MANAGER'S TRACK RECORD:
On merchant banker's front, this is the 76th mandate from its stable. Out of last 10 listings all have opened at a premium ranging from 0.05% to 8% on the day of listing
Company has posted growth in top lines but bottom line has shown inconsistency. Considering exorbitant pricing of the issue, there is no harm in giving it a miss as better options are available in the secondary markets.
Review By Dilip Davda on Jan 21, 2019
DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. With entry barriers, SEBI wants only well informed investors to participate is such offers. With crazy recent listings, SME IPOs have started drawing attention of investors across the board. However, as SME issues have entry barriers and continued low preference from broking community, any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on information available as on date coupled with market perceptions. Author has no plans to invest in this offer.
(SEBI registered Research Analyst-Mumbai).
About Dilip Davda
Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.
Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.
The Surani Steel IPO Analysis helps you to understand about the company, offer detail, valuation, capital structure and financial performance. Our SEBI registered IPO Analysts tells you if Surani Steel IPO worth investing. The Surani Steel IPO Note sets the IPO expectations in systematic way which tells you if Surani Steel IPO good to buy (good or bad / yes or no). The IPO Forecast tells you weather to invest in Surani Steel IPO by providing IPO recommendations i.e. subscribe, avoid and neutral.
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