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
