NCML INDUSTRIES: AN ATTRACTIVELY PRICED IPO

Delhi-based NCML Industries, promoted by Mohanlal Jain, Rajinish Jain, Manish Jain and Suman Jain, is the flagship company of the NCML Group. It proposes to enter the capital market with an offer for sale of 0.6 crore equity shares of face value of Rs 10 each at a price band of Rs 100 to Rs 120. No fresh equity shares are being issued by the company and the entire shares are being sold by non-promoters’ entities to the public. The offer will constitute 25.48 per cent of the post offer paid-up equity capital of the company and the promoters’ holding will remain intact as they are not offloading their shares in the issue. At the upper and lower band the seller of shares of NCML industries will receive Rs 60 crore and Rs 72 crore respectively.

Business and Financials

NCML Industries was incorporated as Newal Chand Mohan Lal Jain Private Limited in September 1996 and later on was converted into a public limited company in December 2010. It was then renamed NCML Industries. NCML is into the business of importing, manufacturing and marketing of edible oil in India with an international presence, dealing in various edible oils such as soya bean oil, cottonseed oil, palm oil (palmolein), mustard oil, rapeseed oil, etc. The company expanded its refining capacity from 350 TPD in FY12 in Uttar Pradesh to 600 TPD in FY14. It has introduced several brands such as Maanik, Mannik Gold, Shan, Moti and Pearl for different categories of oil and operates in almost seven states in North India.

The total revenue of NCML Industries has increased from Rs 1,047 crore during FY11 to Rs 2,767 crore during FY14 and the restated profits after tax have increased during the same period from Rs 13.80 crore to Rs 55.22 crore. The revenue and re-stated net profit during 1Q FY15 was Rs 881.69 and Rs 6.64 crore respectively. The revenue contribution from trading and manufacturing activity was 60 per cent and 40 per cent respectively and based on product profile the revenue contribution was 76 per cent and 24 per cent for palm and soya respectively during FY14.

Valuation

In respect of valuation of the company, at the upper and lower price band the shares of NCML are being offered at a price to earning ratio of 4.3x and 5.1x its FY14 earnings. The book value of the stock has been Rs 136 as on June 30, 2014. The company has a net debt to equity of 0.41 and 0.02 during FY14 and 1Q FY15. The return on net worth of NCML has been the highest among its peers at 17.6 per cent during FY14. In comparison to its peers like Ruchi Soya Industries, Gokul Refoils & Solvents and JVL Agro Industries which are trading at 85x, 74x and 5x price to earnings for FY14, NCML seems to be attractively priced and we recommend subscribing to the issue with a price target of Rs 150.