By Research Desk
about 13 years ago

Sejal Architectural Glass is entering the capital market on 9th June 08 with a public issue of 91.94 lakh equity shares of Rs.10 each in the band of Rs.105 to Rs.115 per share.


The company is setting up a 2 lakh tonne per annum, floatglass manufacturing plant in Bharuch Dist. of Gujarat at project cost of Rs.435 crores. This is being financed by the term loan of Rs.318 crores, unsecured loans of Rs.15 crores and balance largely by equity issue made by proposed IPO as well as pre-IPO.


The company is calling it a backward integration to enable them to control costs and enhance the quality of glass used for value added products. The company is into processing of glass with insulating, toughened, laminated glass and for decorative glass and having its plant at Silvassa. The company has been procuring floatglass and processing it further and supplying them as decorative glass. Floatglass market at present is facing a situation of oversupply and this is revealed from the raw-material costs of the company, which constituted about two-third of the topline upto FY06, which fell to almost 50% in period ending December 07. Also, inspite of being in business, topline growth of the company is not significant as it was at around Rs.20 crores for FY 04, which rose to Rs.34 crores in FY 07 from its own operations. FY 08 may witness a topline of Rs.50 crores from its own manufacturing operations.


So how could one justify a project of over Rs.450 crores for almost 10% of the company's present topline, as a backward integration? Apart from this, financing of this project would heavily leverage the balance sheet of the company as debt of Rs.335 crores for new project results in a debt equity ratio of about 2.8 : 1. The present net worth of the company of Rs.50 crores would go upto Rs.150 crores, post IPO.


Asahi India Glass, an existing listed peer having almost 2½ time capacity of the proposed project has not been doing well for the past couple of years. FY08 topline of Rs.1,000 crores resulted in a PAT of Rs.8 crores only. Share price of this company is now ruling at its 52 week low of Rs.55 (face value Re.1).


The floatglass market in the country is largely controlled by MNCs like Asahi and Guardian. The major consumption of floatglass is in automobile sector, and is also now being used for housing, furnishing and decorative segment. In view of huge capacity created by these two players, we have seen sharp fall in the selling prices inspite of rise in cost of production due to sharp rise in soda-ash and furnace oil prices, which are critical raw-material for any floatglass maker.


Sejal Glass claims to have an advantage of having its feedstock as natural gas instead of furnace oil for its furnace and also proximity to source of sand and soda-ash, as both are available in plenty in Gujarat. However, new capacity of 2 lakh tonne per annum coming in from FY 10 would bring down prices further and also, it would be difficult for the company to market such a huge capacity, which is almost 10-12 times of its present capacity being marketed.


Also, promoters and company's present financial standing is likely to prove risky to implement a Rs.450 crore project which is financed to the extent of 70% by debt. Initial loses can overcapitalize the project cost in coming period.


Considering the present state of floatglass industry, and size of the proposed project, it seems to be quite a risky proposition and hence share price, even at the lower band of Rs.105 per share, looks stretched. Promoters capability to handle such a big project, looking at their track record, is also a big question mark.


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