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Indian IPOs
>> Precision Pipes and Profiles Company
Precision Pipes and Profiles Company Ltd. IPO Analysis 18 December 2007 Source: www.keynoteindia.net
Precision Pipes and Profiles Company Ltd. IPO details: Price Band: Rs. 140 - 150 per share Issue open between: December 17 - 20, 2007 Book Running Lead Managers: UTI Securities & Nexgen Capitals To List on: NSE and BSE Market Cap post-listing: Rs. 2.1 billion or $53.2 million (based on the cap price) Highlights: Precision Pipes and Profiles Company Ltd. (PPAP) is a manufacturer of automobile sealing systems and exterior products. Besides automobile OEMs, it also services the white goods sector, through PVC based customized profiles. It operates from five manufacturing facilities located in New Delhi and Noida. PPAP is a unique and ideal play on the domestic auto component sector, with strong customer relationships with Maruti Udyog Ltd. (MUL), Honda SIEL, etc. Strong technological backing in terms of technical know-how through overseas collaborations and customer relationships are entry barriers, preempting competition. Strong EBITDA margin trend (up from 20.7% in FY05 to 25% in FY07) is on account of pricing power coupled with cost efficiencies. It is insulated from the appreciating rupee, as exports constitute a negligible portion of its revenues (4% in FY07). On the contrary, it has gained from the rupee appreciation, by virtue of 38% of raw materials being imported. Expansion of capacity from 4,750tpa to 11,264tpa by FY10, in our view, improves revenue visibility. Addition of electrical outlet system (EOS) to the product portfolio is another positive. Power and Data Corporation Pty. Ltd. Australia, the patent owner, will outsource EOS from PPAP. The business is capital intensive, as apparent from a low asset turn. Further capital infusion may therefore be essential for growth. Also, over-reliance on a single customer (accounting for 53% of revenues in FY07) is a matter of concern. The IPO is priced at 12.4x FY08E, 10.8x FY09E and 8.6x FY10E earnings. It appears to be fairly valued vis-a-vis other players in the auto component sector. |
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