Birla Cotsyn has revised its price band downward to Rs 12 to Rs 14 and also extended its closing date now to 9th July, 2008 due to poor response evoked by the issue. However, we continue with our analysis and maintain that it is not worth even at par.
Birla Cotsyn is entering the capital market on 30th June 08 with a public issue of Rs.144.18 crores and after making reservation for promoters (Rs.36.65 crores) and employees (Rs.7.25 crores) the size of net public issue is Rs.100.28 crores. It looks doubtful that employees would be subscribing to the issue and hence public issue size could be Rs.108 crores.
While analyzing a company like this, you fail to understand whether you should praise the courage of the BRLM or the promoters to come out with such a poor issue. It does not deserve a par tag, forget a band of Rs.15 to Rs.18 per share!
The company belongs to Yash Birla and P. B. Bhardwaj Group (PBG). Though investors are familiar and have burnt their fingers with Yash Birla Group, track record of PBG is not known. The promoters of the company have been litigating with 420 cases, either having filed by them or against them.
Though the company has been in existence for the last over 65 years, the textile business commenced only in August 2006, when it acquired 18,304 spindles of Khamgaon Syntex (I) Ltd and started manufacturing synthetic yarn. Financial performance of the company was pathetic to talk of least. Till FY 06, topline never crossed Rs.4 crores while bottomline never crossed Rs.30 lakhs. During FY 07, topline was Rs.55 crores, while bottomline was Rs.2.57 crores. First 9 months of FY 08 had topline of Rs.63 crores, while PAT was Rs.2.52 crores. This results in an EPS of less than Rs.2 on equity of Rs.13.62 crores.
The company has now taken up capex of Rs.320 crores, for setting up 36,000 cotton spindles, 1,728 Rotors, 114 Looms as also Dyeing and Processing unit in three phases. It seems as if the whole capex has been chalked out and structured on a very low scale, having high debt component with long gestation.
Presently, all the textile stock having capacity of almost over 5 times and very good profitability are ruling at a PE of 4 - 5 times. This is despite the fact that these companies are having integrated and well balanced model The present equity of the company of Rs.13.61 crores would rise to Rs.94 crores even if price band gets discovered at the upper band or to Rs.110 crores at the lower band. How will a company be able to post even a moderate level of operation?
Also, PBG has its company Polytex Ltd. and financial performance of this company is not furnished in the performance of Group Companies.
The company has all the concerns about project viability, promoter's track record, industry prospects, size of the project and market perceptions. Even par tag could be termed as expensive. So, where is the question of contemplating investment even at the lower band of Rs.15 per share?