Indian IPOs
>> Birla Cotsyn
Birla Cotsyn (India) Ltd. IPO Analysis
30 June 2008
Source: www.keynoteindia.net
Keynote Capitals set "Subscribe with a long term view" recommendation on Birla Cotsyn (India) Ltd. IPO, which opens for subscription on June 30 and closes on July 4.
Birla Cotsyn (India) Ltd. IPO details:
Price Band: Rs. 15 - 18 per share
Issue open between: June 30 - July 4, 2008
Book Running Lead Managers: Allbank Finance, Nexgen, Saffron, Chartered Capital
To List on: NSE and BSE
Market Cap post-listing: Rs. 169 Cr or $39 million (based on the cap price)
Synopsis
- Birla Cotsyn (India) Ltd. (BCIL), a Yash Birla Group company, is engaged in textile manufacturing.
- Primarily a cotton ginning and trading company, it scaled up operations via inorganic route, by acquiring assets of Khamgaon Syntex Ltd in August 2006 for foraying into synthetic yarn. It also entered into a 50:50 JV with Bhardwaj Group in December 2006.
- The acquisition and JV led to a growth in topline and bottomline from Rs3.8Cr to Rs53.5Cr and Rs0.3Cr to 2.6Cr respectively in FY07. EBITDA margins, however, declined from 8.9% in FY06 to 6.0% in 9 months to Dec 07.
- It plans to become fully integrated with presence across spinning, weaving, processing and garmenting and will also foray into retailing by opening outlets under its own brand.
- Under capex plan of Rs320Cr, BCIL will set up an integrated textile project at Khamgaon and Malkapur, and dyeing & processing unit, ready-made garment manufacturing facility and establish retail outlets across India. This capex will be funded via a mix of equity, debt and internal accruals. Till April, 2008, it has raised funds of Rs 140Cr including promoter’s contribution of Rs57Cr and term loans of Rs78Cr.
- Maharashtra Government has conferred ‘Mega Project’ status for the proposed project which makes BCIL eligible for various incentives (Pl. refer details on page 2).
- Presently, BCIL exports to Yemen, Turkey, Middle East and Europe which are 20% of total sales. Going forward, it intends to have export sales of 50% to the US, UK, etc. by leveraging the expertise through tie-up with the Bhardwaj group, which is an international group.
- Key positives are the synergies arising from fully integrated textile manufacturing and foray into retail. However, retail may remain a small portion of the business, given that only 20 no. of stores will be opened within the next 2 years. Promoters also are subscribing to the IPO at the same price, which is also a positive.
- We view the increase in balance sheet size as a negative. Being an asset heavy business, it may require funding including working capital. Low promoter holding (36.3% post-issue) and low EBITDA margin of 6% are causes for concern too.
- We believe the IPO’s valuation is a tad on the higher side, given that the company is a pure-play textile manufacturer. On an annualised basis, the IPO is price at 50.2xFY08, which is expensive compared to peers Bombay Rayon Fashions at 17.7x TTM, Nahar Spinning at 5.8xTTM and Koutons Retail at 32.3xTTM. Till such time as its retail operations reach a sizeable scale, it would be premature to give retail valuations to this company.
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