Burnpur Cement is entering the capital market on 28th November, 2007, with a public issue of 2.19 crore equity shares of Rs.10 each at a premium of Rs.2 per share (issue price Rs.12 per share) for Rs.26.28 crores.
The company presently has a cement grinding capacity of 1,000 TPD and the same has been operating at a capacity utilization of less than 30% for FY 08, while the same was at just 21% in FY 07. The reason for such a low utilization is due to non-availability of clinker and bottlenecks in the production process.
To overcome this, the company now proposes to set up an integrated cement plant of 800TPD capacity expandable to 1,600 TPD with an outlay of Rs.121 crores. This is being financed by equity of Rs.41 crores (promoters contribution of Rs.14 crores) and debt of Rs.80 crores. This new capacity would go on stream by October 2008. Post this capacity, debt equity ratio of the company would rise to 1.74:1 from existing 0.26:1.
The existing performance of the company is pathetic, to say the least! For FY 07, topline was at Rs.24 crores including trading income of Rs.4 crores, which resulted into a bottomline of Rs.1.14 crores on equity of Rs.11.17 crores, resulting into an EPS of close to Re.1.
Present equity of the company is Rs.21.09 crores, which would rise to Rs.43 crores, post IPO. Post expansion, debt of the company would rise close to Rs.90 crores. It is also quite surprising to see sundry debtors of Rs.12 crores on monthly sales of close to Rs.2.50 crores, thus resulting into a debtor cycle of close to 5 months. The inefficient and low performance would continue till FY 09.
Though the company has been in operations since October, 1991, it has been struggling to survive. Inspite of best time for the cement industry, bottomline for the first time, in the history of the company, has surpassed Rs.1 crore. Realising that the existing operations are not viable, due to low conversion margins and non-availability of clinker, the company structured this backward integration. This means, to make the assets of Rs.20 crores, profitable and fully productive, make fresh investments of Rs.120 crores. This defies al logic and commercial prudence!
Though the expansions would be completed in the next 12 months, huge debt of close to Rs.90 crores, would always be a dampner. Even, huge equity base of Rs.43 crores, would always keep EPS depressed and unattractive. Based on existing performance, share is being issued at PER of 12 times while established peers are available in the secondary market at a PER of 5 - 6. Why to risk your money in this tiny and inefficient play?