The company is into manufacturing 14,000 sq. meters (1.18 lakh TPA) of vitrified tiles per day and had total income of Rs.176.07 crores on consolidated basis with PAT of Rs.22.99 crores resulting in an EPS of Rs.16.35 on equity of Rs.14.06 crores. Not bad.
The company is now setting up a wall tile plant with manufacturing capacity of 50,000 TPA with cost of Rs.48.69 crores and also expanding its vitrified tiles capacity by 2,000 sq. meters per day to 1.34 lakh TPA with cost of Rs.12.68 crores. The entire fund requirements is met from the proposed issue.
The company commenced manufacturing of vitrified tiles with production of 4,000 sq. meters per day in October 03 and kept on increasing it over years, by three expansions, by 2006. These expansions resulted in a debt of Rs.63 crores in the books of the company resulting in a debt equity mix of almost 1 : 1. So now, this expansion and diversification is being carried out with public money.
Not bad, but in the process promoters' stake would fall to 35% from 52.42%, and increasing equity base of the company to Rs.21.06 crores. The promoters' stake would have been much lower, if, 40.61 lakh shares on 27-03-06 would not have been issued on merger of Asian Tiles Ltd. in swap ratio of 1 :1.
Asian Tiles for FY 05 had a total income of Rs.15.87 crores, PAT of Rs.2.20 croes and an EPS of Rs.5.44 while the company had total income for FY 05 at Rs.64.30 with PAT of Rs.7.82 crores on equity of Rs.10 crores resulting in an EPS of Rs.7.82. This does not justify swap ratio of 1 : 1 by any standards, but maybe, to increase promoters' shareholding, had compelled them to do so.
Euro Ceramics having issued shares at Rs.165 per share had total income of Rs.179 crores for FY 07 with, PAT of Rs.28.90 crores resulting in an EPS of Rs.16.90. Share is now ruling at Rs.180 levels at a PER of about 11. Comparing the valuation of this company with Euro, it looks reasonable.
On expanded equity ofRs.21.06 croes, EPS based on FY 07 earning results in an EPS of Rs.10.92, giving a PER of less than 10, at the upper band. Expansion and new plant would improve performance from FY 09. Considering this, investment even at the upper band is recommended.