Sucheta Dalal :Diminished margins low customer ba<x>se may impede Texmo’s profitability
Sucheta Dalal

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Diminished margins, low customer base may impede Texmo’s profitability  

February 16, 2010

Texmo Pipes & Products Limited’s over-dependency on its small customer base and concentration on two sectors could limit the company’s profitability. Texmo makes a variety of PVC and HDPE pipes. According to the prospectus filed with the Securities and Exchange Board of India (SEBI), the company’s top ten customers accounted for 43.88% of its sales for the year 2008-09.

The telecommunication and agriculture sectors contributed 24.89% and 53.02% respectively of its total revenues. IDEA Cellular Limited itself accounted for 16.26% of revenues during 2008-09. Besides, Shree Padmavati Irrigations Private Ltd, a promoter group firm, is in the same line of business, thus creating a chance of conflict of interest.
Texmo’s Initial Public Offering (IPO) opens on 16th February and closes on 19th February. The issue size is pegged at Rs42.50 crore-Rs45 crore with a price band of Rs85-Rs90 per share. Almondz Global Securities Ltd is the lead banker running the issue. Credit Analysis & Research Ltd (CARE) has assigned ‘IPO Grade 2’, to the issue indicating ‘below average’ fundamentals.
Texmo’s net sales have inched up from Rs57 crore during 2007-08 to Rs61 crore during 2008-09 showing an increase of just 6.93%. The company posted a negative cash flow of Rs37.10 lakh and Rs44.06 lakh for the period between 1 April 2009 to 31 October 2009, and 3 July 2008 to 31 March 2009 respectively. It has not declared any dividends in the past.
Ravi Samalad


-- Sucheta Dalal