IPO Size: Rs.155 cr

• Rs. 119 cr fresh issue to fund Rs. 90 cr of the Rs. 150 cr capex in Dubai
• Rs. 36 cr offer for sale (OFS) by promoter (99.35% to drop to 73.36%)

Price band: Rs. 133-140 per share

M cap: Rs. 593 cr, implying 26% dilution

IPO Date: Mon 13^th March to Wed 15^th March 2023, Listing Thu 23^rd March 2023

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

Engineered Quartz Manufacturer

Global Surfaces manufactures engineering quartz and natural stone (marble, granite, quartzite) at 2 facilities in Jaipur. It earns 98% revenue from exports, mainly to US, Canada, Australia, Middle East, with US being company’s key market. It is investing Rs. 150 cr for greenfield expansion in Dubai, UAE, which is likely to commence production by Sep 2023.

US Slowdown Impacts Market Demand

Pokarna, India’s largest manufacturer and exporter of quartz surfaces, reported severe drop in margins in Q3FY23 (2.3% net margin against 11.6% in H1FY23), due to slowdown in US housing market, on rising interest rates and lower customer confidence. As demand shrunk by 30-35% MoM, order inflow reduced and Pokarna cut production (which is still low), as demand outlook remains adverse.

Financials: Revenue Flat, Profit Down

Global Surfaces reported Rs. 190 cr revenue in FY22, with 83% from engineering quartz. Revenue remained flat at Rs. 98 cr in H1FY23, but PAT, which stood at Rs. 36 cr in FY22, reduced to Rs. 14 cr in H1FY23, shrinking PAT margin declining to 14% in H1FY23 from 19% in FY22. Thus, EPS also dropped to Rs. 4.0 in H1FY23, from FY22’s 10.5. Despite same topline, profit decline is concerning.  

Moreover, Global Surfaces has presented financials only till H1FY23 in its RHP. US market outlook raises caution on Global Surfaces’ Q3FY23 earnings, keeping short term outlook negative.

Fully Valued even after Expansion

Factoring in the overseas expansion and expanded equity, FY24E EPS is seen at around Rs.10, which discounts the IPO price by a PE multiple of 14x, on a one year forward basis, same as larger peer Pokarna. Thus, IPO is fully priced, without leaving any money on the table for prospective investors.