Refex Refrigerants is entering the capital market on 23rd July, 07 with a public issue of 38 lakh equity shares of Rs.10 each at a premium of Rs.55 per share (total issue price at Rs.65 per share) aggregating Rs.24.70 crores. The share of the company would be listing only on BSE.
The company is into business of refilling and selling non-ozone depleting refrigerants gases popularly known as Hydrofluoro Carbons or HFCs which are used in auto air-conditioners, room and commercial A.C., refrigerators and refrigerating equipments. These refrigerants are replacement for CFC's and HCFC's which deplete the ozone layer. CFC Is to be phased out from year 2010 and HCFC by 2030 from India, as per the agreement entered into by the developing countries under the Montreal Protocol Agreement. The current market size of CFC and HCFC in India is 34,400 MT and SRF Ltd., Gujarat Flourochemicals, Navin Flourine and Chemplast are four manufacturers of these gases.
The company presently has a refilling plant in Chennai in technical collaboration from Kaltech with a capacity of 40 MT per month, with one storage tank and one ISO tank, for which the company imports gas, from across the globe. For FY 07 the total income of the company was at Rs.51.41 crores of which Rs.37.21 crores was trading income. PAT for FY 07 was at Rs.3.92 crores on equity of Rs.11.40 crores resulting in an EPS of Rs.3.44.
The equity of the company sharply rose to Rs.11.40 crores, mainly due to issue of 55.06 lakh shares at par on 30-12-06. An additional 1.30 lakh shares were issued at Rs.30 per share on the same day. What is the rationale and logic of issuing shares at the different rates on the same day? Even bonus of 23.84 lakh equity shares were made on 26-12-06 in the ratio of 4 : 5. Due to this, net worth as at 31-03-07 was placed at Rs.15.32 crores only resulting in book value per share at Rs.13.44.
The company is now expanding its capacity from 480 TPA to 3,000 TPA with an estimated outlay of Rs.36.15 crores which is financed by term loan of Rs.5.50 crores and equity issue of Rs.30.65 crores including at par promoters contribution of Rs.5.51 crores from promoters. Post issue, promoters stake would be close to 65%.
Of the total fund requirement, the company had estimated margin money for working capital at Rs.1.50 crores. On total turnover of Rs.51.41 crores for FY 07, the sundry debtors of the company were at Rs.10.72 crores, while total debt was at Rs.7.18 crores. With an increase in plant capacity by 525%, the working capital requirement would sharply rise and present estimate may not be enough.
The future of the HFC gas is very bright, but the company would have competition from local manufacturers. Due to huge infrastructure cost, the margins of the company would always be under pressure. About 80% is the cost of raw material for the company. If trading turnover is removed, the increase in topline in FY 08 won't be significant. High equity base of Rs.15.20 crores would also be a dampner.
Considering the trading and service nature of business, the issue has very limited room for appreciation.