Barak Valley Cements is entering the capital market on 29th October, 07 with a public issue of 56.60 lakh equity shares of Rs.10 each in the band of Rs.37 to Rs.42 per share. At the upper band of Rs.42, issue size would be close to Rs.24 crores.
The company, presently has cement manufacturing capacity of 760 TPD, of which 460 TPD is manufactured by the company and 300 TPD by its wholly owned subsidiary, Cement International Ltd. Inspite of having such a low level of activity, the company has three wholly owned subsidiaries viz. Badarpur Energy, setting up a 6 MW bio mass based power plant, Cement International is making 300 TPD of cement and Meghalaya Minerals & Mines supplying limestone for cement making.
For FY 07, the total income of the company was placed at Rs.74.50 crores with EBITDA of Rs.24.27 crores, giving a margin of 32.58%. PBT was placed at Rs.16.22 crores while PAT was at Rs.14.27 crores resulting in an EPS of Rs.8.67. Even, results for quarter ended 30th June 07 are on similar lines with PBT and PAT at almost 25% of FY 07. EBITDA margin for the quarter fell to 29.23%.
The company has been receiving various benefits like excise duty exemption. CST/VAT exemption, I.T. exemption, interest rate subsidy etc, which constitutes a significant sum, on aggregate basis. For FY 07, the aggregate amount was Rs.14.84 crores which was at Rs.17 crores for FY 06. Inspite, the PBT for FY 07 was at Rs.16.22 crores while the same was at Rs.12.91 crores for FY 06. This shows that low level of activity is largely made profitable, due to benefits and exemptions. On expiry of these exemptions, future working may not be stable and that profitable. Transport subsidy having contributed Rs.5.89 crores in FY 06 expired in FY 07 and power subsidy also expired in FY 07 which had contributed Rs.15 lakhs in FY 06.
As at 30th June 07, on consolidated basis, net worth of the company is at Rs.49.98 crores, against which, total debt stood at Rs.58.82 crores, resulting in a debt equity ratio of 1.18 : 1.
The company is now expanding its clinkerisation capacity from 420 TPD to 600 TPD and cement grinding capacity from 460 TPD to 750 TPD, as also, setting up 6 MW bio mass, based power plant. Total capital outlay is estimated close to Rs.62 crores, including public issue expenses. This is being financed by term loan of Rs.24 crores, internal accruals of Rs.14.50 crores and IPO of Rs.24 crores. This would further increase the debt of the company to over Rs.80 crores. Equity of the company would also rise to Rs.22.16 crores, which is considered to be very high, for a cement capacity of 1,050 TPD.
The capacity is being increased by about 40% with self sufficiency in power. This means, EPS may hover below Rs.10, as paid-up equity is also increasing by about 25%. Presently, many larger cement companies are ruling at a PE multiple of 5 to 6, and this issue, at upper band at Rs.42 is made at a PER of close to 5. Also, low capacity and high equity base would always be a dampner for the share price to rise.
Considering all these, issue is fairly priced for this mediocre cement company which is posting profits largely due to various exemptions and benefits. Go for secondary market plays, if you are too keen to hold a mini cement or a small size cement company.