By Research Desk
about 15 years ago

Decolight Ceramics is entering the capital market on 24th May 2007 with an issue of Rs.43.45 crores in the price band of Rs.45 to Rs.54 per share.


The company has commercial existence of less than three years having commenced production of 3000 sq. meters of vitrified tiles per day on 1st June 04. In FY 06, the capacity was enhanced to 6,000 sq. meters per day and further to 12000 sq. meters on 28-03-2007. However, last expansion is part of the proposed issue for which capital outlay of Rs.12.65 crores is earmarked.


During FY 07, the total income of the company was placed at Rs.51.78 crores, of which Rs.10.60 crores is trading income and PAT was at Rs.5.55 crores on equity of Rs.10 crores. The debt of the company as at 31-03-07 is huge at Rs.33 crores. Net worth on that day is at Rs.22 crores. Debt equity ratio of 1.5 is really high. Also, it is quite strange to see Rs.1.85 crores to the credit of share application account on 31-03-07. However, 2.88 lakh shares at Rs.54 per share for Rs.1.55 crore were allotted on 23rd and 26th April '07. So why this excess of Rs.30 lakhs? Maybe, earlier the management had planned the issue at Rs.64 per share.


Three years of existence and two expansions. Seems more like an act of desperation.


The company has now chalked out an expansion of Rs.62.50 crores. Except for Rs.12.65 crores, rest is in unrelated fields. Also, earlier the company filed its Draft Prospectus with SEBI on 12-12-06, which was subsequently withdrawn as the company decided to go ahead with a book-built. Maybe, the high pricing on account of favourable primary market tempted the company.


The company is setting up aluminium composite panel manufacturing unit for Rs.3.35 crores and wind turbine generators of 4.60 MW for Rs.23.25 crores. Rs.6.40 crore has been earmarked for constructing additional office and factory buildings and godowns. However, the company has stated that all these unrelated projects would get executed only if IPO succeeds.


This means, even the promoters have admitted that these projects are unrelated and unwarranted. If public gives Rs.43 crores, only then you spend Rs.33 crores on these projects. Really funny way of running a business!


Even if we presume that the issue sails through, equity would burgeon to either Rs.18.29 crores (if issue is made at Rs.54 per share) or to Rs.19.90 crores (if made at Rs.45 per share). More importantly, the vitrified tile industry is a low discounting industry on the bourses.


The company will have huge equity base, low topline and bottomline, which would get poorly discounted, by the market. Hence, investment is not advised even at the lower band of Rs.45.

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