By Geetanjali Kedia

Bharat Wire Ropes (BWR) is entering the primary market on Friday 18^th March 2016, with a fresh issue of equity shares of Rs.10 each, for Rs. 70 crores, in the price band of Rs. 40-Rs.45 per share. Representing 34.60% of the post issue paid up share capital of the company at the upper price band, issue closes on Tuesday 22^nd March 2016.

BWR manufactures steel wire ropes at its plant at Atgaon in Maharashtra, with installed capacity of 12,000 TPA, operating at 53% capacity utilisation. Present promoters acquired the company in June 2010 from erstwhile promoters, who were prohibited by SEBI for about 10 months, in the year 2012 from buying, selling or dealing in the securities market, while said erstwhile promoters are still holding about 18.84 lakh shares in the company, representing 6.40% of pre IPO equity of Rs.29.40 crores. To add woes to corporate governance, company has stated that Registrar of Companies records are not available from 25^th July, 1986 till 31^st March, 2010, as they were not available from the erstwhile promoters.

Company under the new management has not shown any growth in its financials from FY12 to FY15, wherein income has remained stagnant at Rs.77 crores for both these years, with PAT falling from Rs. 2.14 crores to Rs.1.98 crores. For 8 months ending 30^th November, income stood at Rs. 44 crores (of which, about 24% is trading turnover) with PAT at Rs.1.09 crores, showing a declining trend of working. Due to these flat results, net worth of the company just rose from Rs. 66 crores, at 31-3-12 to Rs. 71 crores, as at 30-11-2015. An addition of just Rs. 5 crores to its net worth, in 44 months working – absolutely lacklustre!

Despite such flat working and financials, company has courage to go in for a massive expansion, with a new wire rope manufacturing facility at Chalisgaon in Maharashtra, with capacity of 66,000 TPA and a capital outlay of Rs. 507 crores. This is being financed by term loan of Rs. 330 crores, IPO proceed of Rs. 60 crores, with Rs.117 crores coming in from net worth, ICD, preference shares etc. (of which, Rs. 62.20 crores were used till 31-1-16), with company having spent an amount of Rs. 150.62 crores, till 31-1-16, on this new project.

If we further analyse this amount of Rs. 62.20 crores, Rs. 36.70 crores has been mobilised from net worth (Page 98-RHP). However, this is seen incorrect and contradictory to the financials of the company, as at 30-11-15, wherein, net worth was at Rs.71.33 crores, while Fixed Assets (tangible) and excluding Capital WIP was Rs. 65.73 crores, implying that existing net worth has been largely utilised for existing capacity of 12,000 TPA fixed assets.

Usha Martin, India’s bigger player in the wire rope sector, reported consolidated segmental EBIT of Rs. 113 crores, on income of Rs. 1,425 crores, for 9M FY16, wherein capital employed is about Rs. 1,300 crores, on historical cost basis. This is despite Usha Martin’s global presence in the wire rope space, with a diverse product range, catering to the requirements of all the user industries. Current market cap of Usha Martin stands at Rs. 360 crore (comprising steel and wire ropes business), while BWR is expecting a post-listing market cap of Rs. 200 crore (at Rs. 45 per share), despite annual EBIT of less than Rs. 7 crore. Clearly, here expectations seem to be running sky high!

Also, this industry is facing severe competition from the small regional players on one hand, while threat from bigger players like Usha Martin and other global peers is also very rampant, thus putting severe pressure on the margins.

Hence, clear advice is to remain away from Bharat Wire Ropes issue, due to track record of promoters, stiff competition, wafer thin margins and huge project cost, being largely financed with borrowings, coupled with poor perception and low discounting of sector on bourses, making the issue quite expensive.

Disclosure: No interest