Kiri Inds
Kiri Dyes and Chemicals Ltd. is entering the capital market on 25th March 08, with a public issue of 37.50 lakh equity shares of Rs.10 each in the band of Rs.125 to Rs.150 per share.
The company is into manufacturing of Dyestuff with an installed capacity of 10,800 TPA, Dye-intermediates being Vinyl Sulphone of 3,600 TPA and H Acid of 3,600 TPA. For FY 07, the total income of the company was at Rs.140 crores with PAT of Rs.8.63 crore, resulting in an EPS of Rs.8.63 on equity of Rs.10 crores. For 6 months ending 30-09-07, topline was at Rs.105 crores, with PAT of Rs.8.90 crores.
The total borrowing of the company as at 30-09-07 was at Rs.58 crores, against the net worth of Rs.44.50 crores. Also, due to benefit under section 10B available till March 2010, the company is having MAT liability only, which is keeping its bottomline healthy. However, post March 10th, it will attract the usual 34% tax liability, which will reduce its bottomline to that extent.
Presently due to better realizations of Vinyl Sulphone and H Acid, the profitability of all such manufacturers are quite strong. However, this industry is quite cyclical and passes through a phase where it becomes difficult for the manufacturers to make profits. Working capital burden is also quite high for the industry.
Apart from this, the industry is commanding very low PE multiple of just 5 - 7 times. Atul Ltd., having turnover of Rs.1,000 crores and an EPS of close to Rs.10 is ruling at Rs.55, having a PE multiple of 5.50 times. This is despite book value per share of Rs.105 as at 31-12-07. Metrochem Industries with topline of Rs.300 crores and book value per share of Rs.80 is ruling at Rs.43, which is again despite an expected EPS of Rs.7 for FY 08, which translates into a PE of 6 times. Asahi Songwon having topline of close to Rs.80 crores and EPS of Rs.10 for FY 08, is ruling at Rs.30, translating into a PE of 3 times. This company issued shares at Rs.90 per share in May 07, which was at its lower band at that time. There are many companies like Bhageria Dye Chem, Shri Hari Chemicals ruling at a PE of close to 5 times.
In this scenario, the share price of this company is not worth beyond Rs.60, considering an EPS of Rs.12, on post issue equity of Rs.15 crores for FY 08 and multiplying it by 5 times. Hence, a clear advise to remain away from the issue even at the lower end of the price band.