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Vaswani Industries Ltd IPO Review (Avoid)

Review By MLR Securities Private Ltd on May 2, 2011

Issue Date: 29th April - 3rd May
Price Range: INR 45-49
Issue Size: INR 45-49 Cr
Mcap: INR 106 -115 Cr
Grey Market Premium: INR 4-4.5
IPO Grading: ICRA IPO Grade 2
Promoter Holding: 57.43% (Post Issue)
BRLM: Ashika Capital Ltd

Vaswani Industries incorporated in 2003 is into integrated manufacturing of Sponge Iron, Steel Billets & Ingots and power generation mostly for captive consumption. VIL currently has installed capacities of 90,000 TPA, 36,000 TPA and 11.5 Mega Watt (MW) to produce coal based sponge iron, billet and power respectively.

The company is raising Rs 45-49 Cr depending on the price discovered for pre-payment of term loan of Rs 25 Cr and to meet working capital requirements of Rs 19 Cr.

The promoters Mr. Ravi Vaswani and Mr. Pramod Vaswani have about two decades of experience in the steel business. They are also the founding members of the Vaswani Group, which is involved in steel manufacturing and castings business through three group entities apart from VIL viz. C.G Ispat Private Limited, Cosmos Castings (India) Limited and Kwality Foundry Industries.

  • The company's net sales grew at a CAGR of 46% to Rs 98.6 Cr in FY10 in the last five years while PAT grew at a CAGR of more then 48% to Rs 3.7 Cr in FY10. As of Oct '10 the company reported Net Sales of Rs 75.06 Cr with a PAT of Rs 2.7 Cr.
  • The margins of the company is the weakest amongst its peers with EBITDA margin of just 13.2% and PAT margin of 3.6% while on an average the peers command EBITDA margin of 19.2% and net margin of 8.7%. High interest cost led to corrosion in margins at PAT level.
  • The company is highly leveraged with pre issue debt equity level of 1.7:1. Post issue it will come down to 0.5:1 as the company proposes to utilize part of issue proceeds towards pre-payment of debt.
  • The company's ROCE stood at a subdued level of 13.74% in 2009-10, due to the capital expenditure incurred in the past and during the year, and limited utilization of the same. RONW too suffered and stood at 11.18% in 2009-10 as against 16.43% in the previous year because of the lower profits reported in 2009-10.

Conclusion / Investment Strategy

Investment Rationale

The company is asking for a P/E of 23-25 times its FY11 annualized EPS which is very expensive compared to peers like Godawari Power and MSP Steel & Power. Considering its small size of operations, weak fundamentals and expensive valuations we recommend investors to AVOID the issue.


Reviewer recommends Avoid to the issue.

Review By MLR Securities Private Ltd on May 2, 2011