Alkali Metals has revised its price band downwards from Rs 90 to Rs 105 to Rs 86 to Rs 103, which in our view is insignificant. Even the issue has been extended upto 15th October, 08.
Even now our view is negative on the stock and we do not value the stock worth more than Rs 50 on the most optimistic note. One fails to understand the meaning of reducing the band by less than 5% which is nothing but an immature move on the part of the BRLM and the issuer.
Alkali Metals had entered the capital market on 7th October 08, with a public issue of 25.50 lakh equity shares of Rs.10 each, in the band of Rs.90 to Rs.105 per share.
The company is not a metal company making iron and steel, but is into manufacturing of sodium derivates, pyridine derivates and fine chemicals. Sodium Metal used in fast breeder nuclear reactor for power generation was company's first product.
The company has been in its commercial existence for over 35 years and despite, its size has been very small. For FY 08, the total income of the company was at Rs.65 crores with profit after tax of Rs.7.93 crores resulting in an EPS of Rs.11.45. Book value per share of the company as at 31-07-08 was at Rs.49.25 with net worth of just Rs.36.50 crores. This is inspite of the fact that bottomline of the company in the last 5 years was at Rs.43 crores while cash profit was at Rs.51 crores.
The company is now setting up an Active Pharmaceutical Ingellents (API) plant at Vishakhapatnam with an installed capacity of 672 TPA with total outlay of Rs.38.75 crores, excluding public issue expenses. This project is being financed by proposed issue and internal accruals, and both these sources are quite risky and unreliable.
At the lower end of Rs.90, the company would be able to mobilize Rs.23 crores while at the upper end, it would be Rs.26.80 crores. If we take total project cost at Rs.41 crores, the company would be requiring to source Rs.15 crores from internal accruals.
As at 31-07-08, the company had a total debt of Rs.29.20 crores, of which Rs.15.60 crores are of short-term nature due within one year. This translates into a debt equity ratio of 0.80 : 1. Since the annual cash accruals of the company is close to Rs.7 crores (net off dividend) it would be requiring two years working to mobilize this fund. This means, target production date of April 09 is not likely.
For FY 09, the company is likely to have a bottomline of less than Rs.10 crores, which would translate into an EPS of less than Rs.10 on expanded equity base of Rs.10.18 crores. Considering this, even at the lower band of Rs.90, the share is being issued at a PE multiple of 9 times against many stocks available at a PE of 5 - 6 times. Indoco Remedies expected to have an EPS of Rs.45 for FY 09 is ruling at Rs.215, which implies a PE of less than 5. J B Chemicals ruling at a PE of 4, Natco Pharma at a PE of 5, Surya Pharma at a PE of 3 and Nectar Life at a PE of less than 5.
If this is the state of the existing established players in the secondary market, what is the point in considering this issue, which is virtually issued at a PE of almost double digit. Except for some momentum and high promoters stake of 75% post issue, nothing attractive in the issue even at the lower band of Rs.90.