Astec Lifesciences

Astec Lifesciences is entering the capital market on 29^th October, 2009 with a public issue of 75 lakh equity shares of Rs. 10 each, in the band of Rs. 77 to Rs. 82 per share. At upper band, the company is planning to raise about Rs. 61.50 crores, from this IPO.

The company is presently having three manufacturing facilities, at two locations, in Maharashtra and is engaged in the manufacturing of intermediates, active ingredients and formulations in the off patent proprietary category of Agrochemicals and Pharma Sector. The main object of the IPO is to expand the capacity from 2,800 TPA to 3,950 TPA at Mahad.

For FY09, the total income of the company was placed at Rs. 84 crores with PAT at Rs. 10.73 crores, resulting in an EPS of Rs. 11.38, on an equity base of Rs. 9.43 crores. For three months ending June 09, total income was at Rs. 29.21 crores with PAT at Rs. 3.43 crores, resulting in an EPS of Rs. 3.64 for the quarter. Book Value per share as at 30-06-09 was at Rs. 36.

It is true that the company has a track record of performance and profitability, but still has a debt equity ratio in excess of 1, with inventory and book debts of over 6 months, held by the company. Due to this, the company has not been able to implement the expansion, with its internal accruals, inspite of the plant operating close to 93%, in FY09. Main object of the IPO is to fund capacity addition of 1,150 MT at Mahad, with matching working capital requirements for such expansion. Both this, is estimated to take away Rs. 43.50 crores, out of direct project cost of Rs. 51 crores.

Second problem with the sector is its poor discounting. Bharat Rasayan, which had a total income for FY09, of Rs. 107 crores, with PAT at Rs. 4.86 crores, resulting in an EPS of Rs. 11.44, is ruling at Rs. 66, a PE of less than 6. Even for June 09 quarter, it had an EPS of Rs. 4.54. Sabero Organics is ruling at Rs. 45, inspite of having a total income of Rs. 122 crores for FY09, with PAT of Rs. 10.57 crores, translating into an EPS of Rs. 3.60.

Share of the company is issued at a PE of 7 times, on its historic earnings. But problem for such stocks is lack of interest and appetite of the investors, due to sector and size of the company. Even if one is convinced with its price, it may not be able to reward much to its investors. Hence, one can skip it.