The revenue growth and profitability of the company depend on successful implementation of its new project, as well as market acceptance of the products. It is not an inexpensive IPO offer due to the competitive market with a presence of large and well-established players

Issue Details

Number of shares: 90 lakh
Price band: Rs95 -Rs102 per share
Issue duration: 28th September-1st October
Issue size: Rs85.50 crore-Rs91.80 crore
Qualified Institutional Buyers allotment: 45 lakh shares
Mutual funds allotment: 2.25 lakh shares
Non-institutional investors' allotment: 13.50 lakh shares
Retail investors' allotment: 31.50 lakh shares
Face value: Rs10 per share
Minimum order quantity: 65 shares
Shares prior to the issue: 1.20 crore shares
Shares post-issue:  2.10 crore shares
Market-cap pre-issue: Rs114 crore
Market cap post-issue: Rs199 crore
Listing: BSE, NSE
Lead book running managers: Ashika Capital Ltd and Keynote Corporate Services Ltd

Valuations

Based on the FY10 earnings per share (EPS) of Rs10.14 the P/E works out to 9.37 at the lower end of the price band and 10.06 at the higher band. Its competitors like Usha Martin Ltd, Ramsarup Industries Ltd, Rajratan Global Wire Ltd, Odessy Corporation Ltd and Goodluck Steel Tubes Ltd carry an EPS of Rs2.90, Rs12.70, Rs20.90, Rs1.50, Rs8.20 and Rs8.29, respectively. They carry P/E of 23.40, 8.20, 10.00, 101.30 and 3.40 respectively. The issue seems to be priced competitively compared to its peers. The industry composite P/E stands at 16.90.

Business model

Nashik-based steel wire manufacturer Bedmutha Industries Ltd is entering the capital market to raise Rs85.50 crore through a 100% book building issue. Bedmutha started its commercial production in 1992, by setting up the first galvanised wire plant at Nashik with an installed capacity of 3600 metric tonnes per annum (MTPA). It ramped up its production capacity from 3,600MTPA to 26,050MTPA by setting up three additional galvanising lines at the same location. The company presently has four manufacturing units in and around Nashik with combined production capacity of 60,000MTPA. It produces galvanised wires, cable armour wires, Aluminium Conductor Steel Reinforced Wires (ACSRs), wire nails, earth wires, stay wires, spring steel wires, barbed wires, etc to domestic manufacturers and dealers. Its subsidiary Kamalasha Infrastructure & Engineering Private Limited (KIEPL) which carries out turnkey projects has bagged a Rs60-crore contract in Dharangaon Division of Maharashtra State Electricity Distribution Company Limited (MSEDCL) to set up new sub-stations, augmentation in old sub-stations, laying of 33KV and 11KV lines for approximately 600km, installing around 500 distribution transformers, etc. The company is planning to set up a galvanising plant with latest technology with capacity of 48000TPA and manufacturing of aluminium rods and conductors with capacity of about 42,000TPA.

Financial snapshot

Its cash flow was in the red at Rs2.20 crore for the year ended 31 March 2010.
 

Objects of the issue

The company plans to set up a new plant at Sinnar, Nashik for manufacturing a new product LRPC wire and spring steel wire at a cost of Rs84.94 crore. It has already acquired 15 acres of land to implement the proposed expansion for Rs56.60 lakh.

Analyst's take

Rating agency ICRA Ltd has assigned an 'IPO Grade 2' to the company indicating 'Below Average Fundamentals'. The assigned grading takes into account the company's two decades of track record in the wire manufacturing business, healthy growth in production levels with regular increase in production capacities, strong presence in the western region and a reputed and well-diversified customer profile. The rating agency cites that the grading is constrained by the competition present in the industry due to the presence of several large and well established players in certain product categories and a host of unorganised players in other product segments and the expected decline in return indicators given the large expansion and the resultant equity dilution. Also, the company's operations are working capital intensive, which has impacted the free cash flow generation in the past, resulting in an adverse capital structure. Also, while the demand potential is favourable, the company would face high project implementation risks in setting up the project for LRPC and spring steel wires, especially given the fact that very limited progress has been made in the project so far and its dependence on IPO proceeds for financial closure. ICRA notes that going forward, the overall revenue growth and profitability indicators of the company would remain dependent on successful implementation of its new project as well as market acceptance of the products.

Strengths

•  It has an operating track record of over 19 years in the steel wire business.
   
•  It produces a wide range of products, from MS wires to Grade 3 Spring wires both coated and uncoated. The products include galvanised steel & MS wire, cable armour, aluminium conductor steel reinforced wire, stay wires, annealed/binding wires, high carbon rope wires etc. Its products are registered and approved with various public sector undertakings such as Power Grid Corporation, Maharashtra State Electricity Distribution Company Ltd (MSEDCL), Gujarat Electricity Board (GEB), and Madhya Pradesh State Electricity Board (MPSEB).
   
•  Sales are carried out from various locations like Mumbai, Nashik, Pune, Nagpur, Ahmedabad, Baroda, Bengaluru, Lucknow, Haridwar, Gwalior, New Delhi, Indore, Angul (Orissa). It has serviced clients like Sterlite Industries Ltd, Apar Industries Ltd, Finolex Cables, RPG Cables, Universal Cables, Ravin Cables, Suprajit Industries, Godrej & Boyce, GTL Infrastructure, Ashoka Buildcon Limited, MSEDCL, GEB and MPSEB.
   
• It enjoys sales tax benefits under the Maharashtra State Government Package Scheme of Incentives until 2015. The benefit can be extended until 2017 due to its expansion plans.

Weakness

• The implementation of the project for which the proposed issue is planned is at a very preliminary stage. A delay in implementation may escalate the cost and affect returns from the project.
   
• Its top 10 clients contribute approximately 51.21% of its sales for FY 2010. Any loss of business from one or more of them may affect its revenues and profitability.

Concluding notes
It is not an inexpensive IPO, based on the competitive market with the presence of large and well-established players.