Pennar Engineered Building Systems' initial public offer (IPO) opened for subscription on Tuesday (August 25, 2015) and will close on Thursday (August 27, 2015). The company plans to raise around Rs 98 crore from this issue at the upper end of the price band of Rs 170-Rs 178. Out of the Rs 98 crore, fresh issue is Rs 58 crore, while the remaining amount is offer for sale.
Promoters hold 69.13 per cent stake in the company, which is likely to come down to 62.56 per cent post the IPO.
Company ProfilePennar Engineered Building Systems deals with designing, manufacturing, supply and assembly of customs-designed building systems. Its products and services include pre-engineered buildings and design and engineering services for various manufacturing, warehousing, industrial and custom-designed commercial buildings.
As of June 30, 2015, it had 156 on-going projects across 20 states in India, aggregating to a total order value of Rs 356 crore.
Objective of the IssuePennar Engineered Building Systems plans to use the proceedings of the issue in the following way:1) Rs 34 crore will be used for prepayment of some working capital loans.2) Rs 8 crore will be used for financing the procurement of infrastructure (both software and hardware) for the expansion of the design and engineering services3) Rs 16 crore will be used for general corporate purposes.
Financials & ValuationPennar Engineered Building Systems had reported a net profit of Rs 22 crore on net revenue of Rs 446 crore for FY2015. Its revenue registered a compound annual growth rate (CAGR) of 22 per cent over FY 12-15. Domestic brokerage India Nivesh expects its revenue to grow at a CAGR of 23.2 per cent over FY15-17. Its average return on equity over FY2011-15 was 22.2 per cent.At the upper price band of Rs 178, its shares are available at 28.2 times its FY2015 earnings per share.
Key Risks1) The pre-engineered buildings market is dependent on the overall economy and any slump in the economy will adversely affect the demand for company's product and services.2) Increase in competition from domestic and global players may erode profitability of the company.3) Logistics for Pennar Engineered Building Systems is a major cost for the company. The scalability of the business is dependent on company's capability to expand and set up plant near demand region.
Should You Buy?India Nivesh recommends "subscribe" on the issue, citing its strong revenue growth potential and its dominant position in the industry. However, Elite Wealth says it is a "risky bet" citing its high valuation. IDBI Capital maintains "neutral" on the issue, saying there are concerns to the future growth of the company.
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