Porwal Autocomponents Listing

On 14 January 2008

Porwal Auto Components will list on stock exchanges on Monday, 14 January 2008. The stock will be placed in the B1 group on BSE.

The company had fixed the IPO price at the top end of the Rs 68-75 price band. At the IPO price of Rs 75, the PE multiple works out to 150, based on the year ended March 2007 EPS of Rs 0.5.

The Porwal Auto Components IPO had ended on 20 December 2007 with 1.03 times subscription. The issue received total bids for 51.66 lakh shares as against 50 lakh shares on offer.

The qualified institutional buyers (QIBs) category was subscribed 0.21 times, the non institutional investors category was subscribed 0.47 times and the retail investors category was subscribed 2.44 times.

Porwal Auto Components manufactures of automotive components. The company has manufacturing facilities at Indore.

The company plans to use the proceeds to increase its current capacity from existing 6,600 metric tonne per annum to 27,600 metric tpa and set up a wind mill with power generation capacity of 1.5 megawatts (MW) for captive consumption.

Porwal Auto Components reported a profit after tax of Rs 0.75 crore on sales of Rs 29.51 crore in the year ended March 2007.

Porwal Autocomponents Allotment Status

Porwal Autocomponents Allotment Status

Porwal Autocomponents - Oversubscription Details

Qualified Institutional Buyers (QIBs) - 0.2124 times

Non Institutional Investors - 0.4790 times

Retail Individual Investors (RIIs) - 2.4435 times

OVERALL - 1.03 times

GREY MARKET PREMIUM @ 2-3

Porwal Auto Components — IPO Avoid

Investors can avoid subscribing to the initial public offering of Porwal Auto Components which is in the business of manufacturing castings. The fragmented nature of the foundry industry with a number of small players, competition from larger companies , unattractive margins and heavy dependence on one client, make the offer uninviting.

At the price band of Rs 68-75, the offer is priced at 15-17 times its likely FY-09 earnings on the post-issue equity. At the upper end of the price band, the company will raise around Rs 37.5 crore to fund its capacity expansion and set up a windmill for captive power consumption.
Business and plans

Porwal Auto manufactures ductile iron and grey iron castings and components primarily for the automobile industry. To cater to the growing demand, the company has expanded capacity up to 7400 tonnes in 2006-07.

The company plans to further increase installed capacity to 27,600 tonnes in FY 2008. 80 per cent of this installed capacity is to be utilized by 2009-10. With increase in capacity, the company expects to benefit from higher domestic demand for automobiles as well as the trend of overseas OEMs (Original Equipment Manufacturers) sourcing components from India.

But in a fragmented industry such as this, small companies will find it tough to compete with bigger players. The latter score over the smaller ones in terms of ability to execute larger orders, offer value added products such as machined castings and forgings and sub-assemblies and assemblies. These value additions also bring in better margins. Moreover, export growth for Indian component makers has come from high-end cast products and higher technology castings rather than from raw castings or forgings.

While the company too has plans to increase the supply of finished castings and scale-up its machined castings production, it will face stiff competition from established players. The company also needs to diversify its risks by supplying to other segments of the auto industry such as passenger cars and two-wheelers (to combat any slowdown in one particular segment ).

Currently, nearly 90 per cent of its revenues come from supplies to Eicher Motors for its commercial vehicles. L&T case equipment, Shakthi Pumps, Man Force trucks and a few others chip in with the rest. Eicher’s new joint venture with Volvo for the commercial vehicles business, may also create some uncertainty if the latter reviews the supply chain.
Financials

For the year ended 31 March 2007, the company recorded sales of Rs 34 crore, which grew by about 32 per cent from the previous year. This was primarily due to capacity increase. Net profits decreased by about 8 per cent to Rs 75 lakhs. Margins may also be under pressure in the short-term due to finance charges

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