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Cords Cable coming out with an IPO
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Sunday, January 20, 2008 |
Cords cable industries, which manufactures cables, is coming out with an initial public offer (ipo) of 30.8 lakh equity shares to raise about rs 41 crore at the upper price band. the issue will constitute about 27% of the fully diluted post-issue paid-up capital of the company.
The proceeds will be used to set up a manufacturing facility at a cost of rs 57 crore. the remaining funds will be provided by icici bank through the external commercial borrowings (ecb) route. at its current p/e multiple, considering the company's current positioning, as well as the growth potential of the sector, the stock looks attractively placed. investors can subscribe to the issue with a medium-term outlook.
Business : the company manufactures cables (including instrumentation and control cables) for various industries, as well as for power transmission. the power sector accounts for nearly 55% of its revenue, followed by the cement sector at 11%. within the product group, instrumentation and control cables account for 75% of the company's revenue, and also command better margins. the company largely serves industrial customers.
It had an order book of rs 77 crore as of november '07, with a delivery schedule of 3-4 months. cords cable has a facility in rajasthan, which was expanded recently at an investment of rs 14 crore. the company plans to set up another facility in the vicinity.
The new facility, to be commissioned by march '08, will manufacture rubber cables and ht power cables, which are new segments for the company. with its existing clientele and past experience, breaking into this segment should not be much of a problem. an important feature of the cables business is that while it accounts for only 5-8% of a project's cost, it has a critical role to play in the success of the project. this is especially true for instrumentation and control cables. this creates an entry barrier, giving existing players an edge in a fast-growing market.
Financials : the company's sales witnessed a compound annual growth rate (cagr) of 50% between fy05 and fy07, while profit rose by nearly 130%, with a significant improvement in operating margin. accordingly, the return on net worth increased from 37% in fy05 to 60% in fy07. this figure fell in the first half of fy08 due to infusion of fresh capital for new projects. during h1 fy08, sales rose by 81%, while net profit grew by nearly 93%. on the cost front, interest and depreciation charges together surged by nearly 88%, primarily on account of fresh borrowings to fund a new unit.
Outlook : the company's p/e for trailing four quarters works out to 10.3 based on current equity, and 16 based on post-issue equity, at the upper price band. in comparison, its peers are trading at p/es ranging from 10-17x. the company looks attractively placed in a fast-growing market, which has inter-linkage with all major sectors. with limited number of players and product quality playing a critical role, the company is expected to continue its growth momentum. gains from expansion should start coming in from Q2 FY09 onwards. Source : economictimes.indiatimes.com |
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posted by www.OnlineEquityCalls.com @ 9:28 PM  |
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Cords Cable Industries IPO review
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Cords Cable Industries, promoted by mechanical engineers Naveen Sawhney, D K Parashar and Rakesh Malhotra in 1991, caters to the growing requirement for high quality customised cables. Over the years, the company has been expanding its product range and has added a variety of specialty cables to its product range. The aim was to address specific requirement of industries involving modern process technologies, instrumentation and communication demanding the highest standards of precision and reliability and household users with assured quality and safety standards. Recently, Cords Cable Industries increased its capacities for existing products (including low-tension cables) at Rs 13.20 crore. Production from the expanded facility started in January 2008. The product portfolio includes low-tension (LT) control and power cables (up to 1.1 KV); instrumentation, signal and data cables; thermocouple extension/compensating cables; panel wires/household wires/flexible cables and specialty cables (tailored for each application as per specifications of customers). In view of the increasing demand for cables and the need for diversifying and expanding its existing range of products, Cords Cable Industries plans to add high-tension (HT) cables and rubber cables to its existing product range at an outlay of Rs 57.40 crore (Rs 5.19 crore has already deployed in this project). The commercial production from this expanded facility is expected to start from April 2009. For funding such expansion and for working capital and general corporate purpose, the company has lined up an IPO to raise Rs 38.56 crore to Rs 41.65 crore comprising fresh issue of 30.85 lakh shares in the price band of Rs 125 to Rs 135 per share. It will take on Rs 12.20-crore debt for the proposed expansion. Strengths - The organised cable industry has grown at an estimated CAGR of 25% in the last three years. This growth is likely to sustain over the next few years due to various favorable factors such as large-scale investment in power (generation, transmission and distribution), steel, refineries and other manufacturing sectors leading to huge demand for cables and investment in new sectors like metro rail, aviation, and wind power leading to demand for speciality cables.
- Has a diversified client profile including from the power, cement, refineries, steel, fertilizers and chemicals sectors. Is the approved vendor for many large caps such as NTPC, Bhel, Powergrid Corporation of India, Nuclear Power Corporation, L&T, Tata Steel, Reliance Energy, Tata Power, Hindalco, ACC, HPCL, GAIL, and Honeywell. Also has been approved by almost all top consultants like Kvaerner Powergas India, Toyo Engineering India, Engineers India, and Rites.
- Production from expanded facility to produce LT power cables and other products started in January 2008. Empanelled with most of the large corporates and top consultants comprising Bhel, Tata Steel, NTPC, L&T, Reliance Energy, Nuclear Power Corporation of India, and Cairns.
- The barriers to enter the cable industry are pre-qualification on technical grounds and proven track records. Pre-qualification with proven track record with consistent performance will help in selling products.
Weaknesses - Power-cable producers are required to get pre-qualification on technical grounds and should have proven track record. This is a long drawn out process and needs substantial investment of time and money. At present, Cords Cable Industries has pre-qualifications for LT cables but not for HT and rubber cables to be manufactured after proposed expansion.
- Competition from large number of cable manufacturers in the organised as well as unorganised sectors and imports. Rising raw-material prices will also put pressure on margin.
- Contingent liabilities of Rs 51.09 crore not provided for. Net worth after the issue would be Rs 69.98 crore.
Valuation Over the four-year period ended March 2007, revenue grew at a CAGR of 60% and net profit at a CAGR of 166%. Operating profit margin also improved to 15.2% in the six months ended September 2007 from 3.9% in the year ended March 2003. Order book stood at about Rs 77 crore end November 2007. Of this, around 50% comes from the power sector. The historical asset-turnover ratio of more than 6 expected to be maintained. The completed expansion may give additional revenue of about Rs 75 crore annually. Once commercial production after the proposed expansion from April 2009 would add about Rs 275 crore- Rs 300 crore to the top line from FY 2010. On annualised EPS of Rs 9.4 in the six months ended September 2007 on post-issue equity capital of Rs 11.43 crore, the P/E works out to 13.3 14.4 at the price band of Rs 125Rs 135. The trailing 12-month (TTM) P/E of listed peers Torrent Cables, KEI Industries and Universal Cables were 9.9, 16.6 and 15.3. However, they are comparatively large players. But KEI Industries and Universal Cables also make HT cables--- a product Cords Cable Industries intends to manufacture. Source : http://ipoanalysis.blogspot.com/2008/01/cords-cable-industries-ipo-review.html |
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posted by www.OnlineEquityCalls.com @ 8:19 AM |
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Cords Cable Industries: Invest
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Robust growth in sales, established clientele and the proposed addition of higher value-added products suggest good prospects.
Mr Naveen Sawhney (Right), MD, and Mr Rakesh Malhotra, JMD. Srividhya Sivakumar Investors with a lowrisk appetite and a moderate return expectation can consider an exposure in the initial public offering of Cords Cable Industries (CCIL). In the business of manufacturing cables, CCIL offers a proxy exposure to the ongoing infrastructure and power growth story. Robust growth in sales and bottomline, diverse revenue mix, established clientele and the proposed entry into HT (high tension) power, rubber and speciality cables segment, suggest good prospects for the company. In the price band of Rs 125-135, the stock would be valued at about 12-13 times its likely FY-08 per share earnings on a diluted equity base. While the valuation is not a steep discount to established players such as KEI Industries, they appear attractive, considering the strong demand environment and the move by CCIL into higher value-added product segment. We would be more comfortable if the offer is priced at the lower end of the price band. Investment rationale The demand for cables is set to increase significantly, given the ongoing capex in power and infrastructure and strong growth in industries such as metro rail, shipping and aviation. In the light of the robust demand undercurrents, CCIL's capacity expansion in low tension (LT) power cables segment and the proposed addition of HT power, rubber and speciality cables to its product portfolio appear promising. CCIL's established track record of over 15 years with approvals and pre-qualifications from companies such as NTPC, BHEL, Power Grid and Reliance Energy also lend confidence to its ability to further penetrate the cables' market. CCIL's order-book pegged at about Rs 77 crore (as on November 30, 2007) lends visibility to revenues. Revenues could also get a lift from the management's renewed focus on the export market. While the company has so far not enjoyed any significant exposure to the export market (1 per cent in FY-07), it plans to export to over 15 countries by FY-09, broadbasing from the current spread of over five countries. In this context, CCIL has already tied up with companies in West Asia such as Petroleum Development Oman and Saudi Electric Supply Company. CCIL witnessed a compounded earnings growth of over 328 per cent supported by a 67 per cent growth in revenues during the last four years. During the period, operating profits enjoyed a CAGR of about 127 per cent; operating profit margins expanded by 8.9 percentage points to about 14.7 per cent. Going forward, margins may witness a further expansion given CCIL's foray into higher value-added products. Besides, post-expansion, CCIL may also benefit from better utilisation of its capacities. Business CCIL has a diversified clientele and product portfolio. Its current order-book, with the major portion leaning towards power sector (about 48 per cent), is spread across sectors such as cement, refineries and petrochemicals and steel. The company may be able to further extend its reach to sectors such as railways, shipping and wind power after the proposed expansion of its capacity and the addition of new products. On the product front, it offers an extensive range of high quality control and instrumentation cables, power cables and special cables for oil wells. The company plans to utilise proceeds from the issue towards setting up of production facilities. About Rs 6 crore from the proceeds will be diverted towards working capital requirements. Concerns While CCIL does hedge its price risk on copper to an extent, any steep increase in price of copper and aluminium (about 50-70 per cent of the raw material cost) may adversely affect its earnings. Offer details The offer is open from January 21-24. Collins Stewart Inga is the book running lead manager to the issue. More Stories on : Automobile Components | IPOs | Recommendation Source : http://www.thehindubusinessline.com:80/iw/2008/01/20/stories/2008012050561100.htm |
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posted by www.OnlineEquityCalls.com @ 3:22 AM |
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