RUSHIL DÉCOR
Rushil Decor has entered the capital market on 20th June 2011 with a public issue of 56.4 lakh equity shares of Rs.10 each, in the price band of Rs. 63 to Rs. 72 per share. Of this, promoters will subscribe to 2.4 lakh shares, amounting to investment of Rs. 1.76 crore at the upper price band. The net issue to public of 54 lakh equity shares comprises 37.50% of the company's post issue paid-up capital constitutes Rs. 38.88 crore at the upper price band. The issue closes on 23rd June 2011.
Rushil Decor manufactures decorative laminate sheets under the brand 'Vir Laminate' at its 3 manufacturing facilities in Gujarat, having combined installed capacity of 30 lakh sheets per annum. The company also manufactures plain particle boards in Gujarat with installed capacity of 13.76 lakh square meters. It proposes to establish Medium Density Fibre (MDF) board manufacturing unit in Karnataka having 90,000 cubic metre of annual installed capacity with an investment of Rs. 73.4 crore. The proposed investment is to be financed by bank loan of Rs. 44 crore and balance from equity raised via the IPO.
Since the company's key raw materials include petrol based products such as phenol, methanol and melamine, it is subject to profit fluctuations as input prices vary. Besides presence in a very competitive industry due to presence of large organized and unorganized players, the business is also highly working capital intensive. Additionally one of its raw materials, cotton stalk, is seasonal in nature, hence needs to be stored in warehouses to meet full year demands.
The company venturing in a new geographic market of Karnataka with previous experience only in Gujarat will also face potential challenges. Although it has been sanctioned a term loan of Rs. 44 crore for the proposed project by Bank of Baroda, no working capital facilities / funding for the proposed project have been arranged. Besides, company has failed to maintain proper records of inventory in the case of process stock for the period 2006-07 to 2009-10.
For FY10, company clocked sales of Rs. 96 crore, of which, 53% were from exports and it earned net profit of Rs. 3.9 crore. During 9 months of FY11, sales touched Rs. 88 crore with exports accounting for 40%, while net profit was Rs. 3.8 crore, resulting in 4.3% net margins. EPS on equity of Rs. 8.76 crore was Rs. 4.29 for 9mFY11. As on 31-12-10, it had a high contingent liability of Rs 19 crore for Letters of Credit (LC) issued by bank.
As on 31st December 2010, company's net worth stood at Rs. 25.14 crore while its total debt was as high as Rs. 71 crore, resulting in debt-equity ratio of Rs. 2.84:1. Promoter shareholding, which currently stands at 88.58%, will drop to 55.55% post-IPO.
At upper price band of Rs. 72, company is issuing shares at PE multiple of 12.6 times in the IPO, based on annualised FY11 EPS of Rs. 5.7 for FY11. On the other hand, Century Plyboards, having sales of Rs. 1,433 crore i.e. 10 times of Rushil Decor's sales and net profit margin much higher at 10.8% for FY11, is ruling at PE multiple of around 9 times with market cap of Rs. 1,430 crore. Thus, Rushil Decor, aiming for market capitalisation and enterprise value of Rs. 104 crore and Rs. 167 crore respectively at upper price band, is very aggressive.
Considering the present secondary market conditions as well as company's weak fundamentals, the issue is a clear avoid.