Somi Conveyor Beltings is entering the capital market on 24th June 08 wait a public issue of 62.28 lakh equity shares of Rs.10 each at a premium of Rs.25 per share (total issue price Rs.35 per share). Of this, promoters are subscribing to 15 lakh shares while 47.28 lakh shares are being offered to the public.
The company is presently into manufacture of rubber conveyor belts with capacity of 1.68 MPA of width upto 1200 mm. The products of the company are used by cement, steel, power, fertilizer, sugar, coal and lignite, iron ore and mining sector. Presently, the company is more of a regional player catering to the industries located in Rajasthan. Financial performance of the company, though mediocre, has been showing a growth over the year. FY07 had topline of Rs.15.15 crores with PAT of Rs.1.35 corers while first 9 months of FY08 posted a topline of Rs.11.80 crores and PAT of Rs.96 lakhs.
The company is now doubling its production capacity from 1.68 MPA to 3.40 MPA as also capacity to manufacture rubber conveyor belt of higher width upto 2000 mm. This would give them a better realization as cost of production would almost be the same.
The total cost of project is estimated at Rs.35 crores, which is being financed by term loan of Rs.8.50 crores being availed from PNB and equity contribution of Rs.26.50 crores. Of this, promoters have already subscribed to 17.41 lakh equity shares at Rs.25 in April 07 and would now be subscribing to 15 lakh shares at Rs.35 per share. This results into an average cost per share of Rs.30, which is not bad against the issue price of Rs.35. Post issue promoters stake would be about 53% while 47% would with the public.
A good thing about the project is that all the machineries have been in place with the trials being carried out by the company and it hopes to start commercial production by August 08, thus having no gestation period for the new project. Also, the production of the new unit would be mainly to cater to the need of the existing customers as they all need conveyers of higher width. Hence, there is no need to hunt for the customers on starting the production.
However, if one needs to hunt for a negative in the issue, it could be the high equity base of Rs.11.78 crore and listing only on BSE.
However, the company falls into material handling segment which enjoys better earnings multiple on the bourses. Considering doubling of the capacity with width, issue price at Rs.35 is reasonably priced as it translates into an enterprise value of just Rs.50 core, of which Rs.35 crore is for the new project. Hence existing plant of similar capacity is being valued at around Rs.15 crores. Due to better realization from the new capacity, the company in its full year should be able to post a topline of over Rs.42 crores with PAT of Rs.5 crores, which would result in an EPS of Rs.4.25, translating into a PE ratio of about 8 times. Promoters experience in the sector is an added advantage.
Though the issue and company can be categorised into small cap, the issue price at Rs.35 looks reasonably priced and those who have medium term view, can go for the issue.