Niraj Cement

Niraj Cement Structurals has entered the capital market on 26th May 08 with a public issue of 32.50 lakh equity shares of Rs.10 each in the band of Rs.175 to Rs.190 per share. The company is a pure contracting company mainly engaged in road construction projects more as a sub-contractor. The sector has been witnessing good growth for the last 2 - 3 years and all the listed peers of the sector has been posting a growth of about 50% annually. However, this company seems to have almost stagnated on topline while posting a declining trend on bottomline. Total income for FY 06 was at Rs.70 crores with PAT of Rs.7.80 crores which was at Rs.93 crores as total income for FY 08 with PAT at Rs.6.53 crores. However, this performance has been achieved after huge rise in sundry debtors, which were at Rs.103 crores as at 31-03-08. This represents for 410 days of sales against industry average of about 120 days. Debtors have been rising disproportionately for the last two years from Rs.33 crores as at 31-03-06 to Rs.60 crores as at 31-03-07. One does not know the quality of these debtors as debt of Rs.34 crores as at 31-03-08 are more than 6 months old. As the company has been executing most of its work as sub-contractor, it is subject to scrutiny, reconciliation, claims and counter claims between sub-contractor and principal contractor as also between principal contractor and project owner. The company now intends to mobilize about Rs.57 crores at the lower band of Rs.175 per share, which is mainly required for purchase of capital equipments of Rs.21 crores and for working capital of Rs.18 crores. It is strange to see that the company is expecting total income of Rs.350 crores for FY 09, a rise of over 270% from FY 08 topline and estimating debtors of just Rs.60 crores with a cycle of less than 63 days. Any increase in its level of activity would put extra burden by way of working capital and Rs.18 crores allocation would not be sufficient. Sundry Debtors, which have been on a rise with every passing year from Rs.14 crores as at 31-03-04 to Rs.103 crores as at 31-03-08, are estimated to be just at Rs.60 crores as at 31-03-09 despite a steep rise in the topline. Seems impossible. FY08 EPS of the company was at Rs.9.18 and issue at the lower band of Rs.175, translates into a PE multiple of 19 times. All other similar companies are ruling at a PE multiple of 6 to 9 times. Share of the company is also listing only on Bombay Stock Exchange which would also be a negative for the stock. Considering these aspects, issue is very expensive and hence advised to remain away.

Niraj Cement

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