Circuit Systems (India) is entering the capital market on 27th September, 2007, with a public issue of 42.45 lakh equity shares of Rs.10 each at a premium of Rs.25 per share (total issue price of Rs.35 per share). Of this, promoters are subscribing to 12.45 lakh equity shares while 30 lakh shares are being issued to the public. Shares of the company would be listing only on BSE and expanded equity of the company would be Rs.12 crores.
The company is presently manufacturing rigid Printed Circuit Board (PCB) with annual manufacturing capacity of 84,000 sq. meters. The financial performance of the company has not shown any considerable improvement in the last 5 years. Total income of the company was Rs.18.08 crores in FY 03 which rose to Rs.39.21 crores in FY 07 with PAT rising from Rs.79 lakh to Rs.2.67 crores. Infact, PCB industry has been passing through a bad phase, due to technology constraints and import threat from Taiwan, China, Singapore and Korea. Probably, this was the reason that you don't see any PCB stocks listed on the bourses except Fine Line Circuit. Many such projects came during the last decade, almost all of which went into losses and either had to down their shutters or were acquired by the larger integrated players or electronic components manufacturers. Even this company has acquired PCB Division of Stovec Industries Ltd. and of GNFC in the past.
The company is now expanding its capacity from 84,000 sq. mts. To 1,50,000 sq. mts. of PCB, mainly to cater to small orders of particular design, known as prototypes, which has higher margins. Presently, the company is supplying in bulk and for repeat jobs, which has lower margins. The total cost of project is estimated at Rs.25.23 crores, which is partly financed by term loan of Rs.4.52 crores and partly by internal accruals of Rs.3.93 crores. One fails to understand, now the company would be able to mobilize such amount of Rs.3.93 crores, when its total borrowing is about 20.32 crores against net worth of Rs.18.80 crores, as at 31-03-07. Even cash profit for FY 07 was at Rs.4.08 crores and the company had negative cash flows for last 5 years. Debtors of the company have been continuously on a rise and in FY 07 they rose further by Rs.4 crores to Rs.14.75 crores. This means, yearly cash accruals are being used to finance the working capital requirements.
The EPS of the company for FY 07 was at Rs.3.25 and present issue is being made at a multiple of close to 11. In the past, majority of such projects got wound up. Fine Line Circuit, a listed stock is ruling at a PE multiple of about 10. This company has equity of Rs.4.85 crores with topline of Rs.32 crores and EPS of Rs.5.
The post issue equity of the company at Rs.12 crores, would keep its EPS subdued and even increased capacity may find it difficult to service. In the past, such smaller companies and with listing only on BSE, have not rewarded investors well and fate of this company would also be more or less the same.
Considering past financial performance, industry prospects and size of the company, it is not advised to invest in this IPO.