Jindal Cotex is entering the capital markets on 27th August 09, with a public issue of 1.25 crore equity shares of Rs. 10 each, in the band of Rs. 70 to Rs. 75 per share. Promoters are subscribing to 12.04 lakh shares, while 107.50 lakh shares are offered to the public.
One must admire the courage of the promoters to come out with an IPO in the band of Rs. 70 to Rs. 75, against the book value per share of Rs. 23.10, as on 30-06-09 and at a PE multiple of 21.68 times, at the upper end of the price band. There are over 10 similar companies available at PBV of 0.50 times and at a PE of close to 5 times. For example, SEL manufacturing having book value of Rs. 184 is ruling at Rs. 70. This is inspite of the company having posted an EPS of Rs. 33.50 for FY09 and Rs. 12 in quarter ending June 09. SEL also has sizeable presence having 4 garmenting units and 1 spinning and knitting units with annual sale of Rs. 605 crores for FY09. SEL has 74,256 spindles for cotton yarn, 7,050 TPA of knitted fabrics, 3,000 TPA of fabrics processing and dyeing and 7.50 million pieces per annum of garments. That means, this company is available at a PBV of 0.38 times and PE multiple of 2 times. There are over 10 such companies available in this range of valuations.
Books of the company are quite leveraged with debt of close to Rs. 55 crores, on net worth of Rs. 29 crores, as at 30-06-09. The proposed project cost of Rs. 216 crores is financed by term loan of Rs. 91 crores and proposed IPO of Rs. 90 crores, thus leaving a gap of Rs. 36 crores, in addition to public issue expenses.
Such companies come out with IPO mainly to play in the stock market, as it is obvious that no sane investor would be willing to subscribe to it, when so many lucrative ideas are available in the secondary market. So the issue is for, of and by the promoters, ab-initio. Maybe, effort shall be made by them to offload this IPO in the secondary market, by indulging into market manipulations and operations. This kind of movement, we have been witnessing in the share price of about 8 -10 companies. Promoters of this company seem to have inspired by those companies.
A clear advice to the public - remain away from the issue and don't be part of this weak and unviable project.