Aishwarya Telecom is entering the capital market on 15th April 08, with a public issue of 40 lakh equity shares of Rs.10 each in the band of Rs.32 to Rs.35 per share.
The company is very small in terms of its turnover and profits and engaged in supplying Test & Measurement equipments to the telecom industry. Over 90% of the company's business comes form the equipments supplied by outsourcing or is of trading nature. For FY 07, the total income of the company was at Rs.21.74 crores, of which Rs.20.30 crores came from trading. These outsourced equipments were purchased by the company for Rs.13.45 crores, This implies a gross margin of Rs.6.85 crores or 33%. Presently, the company has two manufacturing units and the gross sales of the company from these units has been just Rs.1.71 crores.
During 9 months ending December 07, total income was at Rs.22.08 crores, of which trading income was at Rs.18.83 crores. These were purchased for Rs.13 crores, giving a margin of 31%. So, why to manufacture, if such a high margin is being enjoyed by the company in trading. The working capital requirement is quite high as evident from Sundry Debtors of Rs.13.77 crores, as at
PAT of the company at Rs.3.15 crores for 9 months ending
The company has chalked out capex of Rs.21.50 crores, which is being financed by term loan of Rs.3.60 crores and balance by equity issue. Rs.4.68 crores have been mobilized by placing 12 lakh equity shares in January 08 at Rs.35, and at Rs.40 per share. Present state of primary market has forced the company to issue at lower rate of Rs.35 at the upper band.
Post issue, equity of the company would rise to Rs.10.66 crores and shares of the company would be listing only on BSE. This would place the company into small cap or micro cap category, as, its expected market capitalization would be in the vicinity of Rs.35 crores.
Presently, small cap sectors are ruling at a PE multiple of 3 to 4 in various sectors. Though this sector has been enjoying better multiples in the past, presently many companies with overseas promoters are available at a PE of about 6 - 7 times. Avaya Global and Krone Communications are few stocks to name.
The company may not be able to post an EPS of Rs.6 or above for FY 09, on expanded equity base, which would keep its share price quite low. Though, share may not look overpriced at Rs.32, at the lower band, it would definitely not enjoy or attract any interest from the investors. In such a situation, one could witness momentum on listing, as has been seen with few related stocks.
Considering all these, inspite of issue not aggressive, may not attract much interests. Also, since better plays are available in the secondary market, it is better to go for those stocks.