Readymade Steel - Avoid

Anand Jain / 27 Jun 2011

Readymade Steel India (RSIL) which is issuing 32 – 39 lakh equity shares in the price band of Rs 90-108 is planning to raise Rs 34.74 crore. It is a very small issue and will command a market capitalization of Rs 80-95 crore after it gets listed. The company is basically a steel re-rolling company.  It buys steel from the outside market and converts the same into various shapes and sizes like cranked bars, stirrups, verticals, and column/beam cages as per the requirement of customers. The company has an installed capacity of 27000 MTPA for processing steel from its plant located at Khopoli, Maharastra.  

Readymade Steel

Readymade Steel India (RSIL) which is issuing 32 – 39 lakh equity shares in the price band of Rs 90-108 is planning to raise Rs 34.74 crore. It is a very small issue and will command a market capitalization of Rs 80-95 crore after it gets listed. The company is basically a steel re-rolling company.  It buys steel from the outside market and converts the same into various shapes and sizes like cranked bars, stirrups, verticals, and column/beam cages as per the requirement of customers. The company has an installed capacity of 27000 MTPA for processing steel from its plant located at Khopoli, Maharastra.

The proceeds from the IPO will be used for expanding the existing capacity at Khopoli and setting up of new facilities at New Delhi and Raipur. The Khopoli facility is to process additional 63000 MTPA of steel, taking the total capacity to 90000 MTPA. The new facilities near Delhi and Raipur are to have a capacity of 50000 MTPA each. There are some concerns that loom large on the company. The topline of the company is heavily dependent on a few clients as the top six customers contribute to 95 per cent of the company’s sales. The concept of ready to use steel is still to reach and achieve mass acceptance. Moreover, land for setting up of units at New Delhi and Raipur is yet to be finalized.
 
On the financial front the company operates on a very thin operating and net profit margin of 4.80 per cent and 2.84 per cent respectively. The net sales of the company have witnessed a stupendous jump in its topline and bottomline. For 9MFY11 the company has posted net sales of Rs 81.61 crore as against Rs 32.37 crore in FY10. The net profit for 9MFY11 stands at Rs 2.32 crore as against Rs 0.43 crore in FY10. On the valuation front, the company is likely to trade at a P/E of 25.85 – 31.02 times and 25.66 – 30.80 times on its upper and lower price bands respectively which looks to be on the higher side. We feel that with such a thin margins the company will be not be able to do justice to the P/E that it is demanding. Therefore, we feel that one should strictly refrain from subscribing to the issue.
  
Issue Information
Rating: 05
Issue Opens on
27-Jun-11
Issue closes on
29-Jun-11
Issue Size (No. of Shares)
32 - 39 lakh equity shares
Price Band (Rs.)
Rs 90 - 108
Issue Route
Book Building
Promoters
Anil Agrawal
Post issue Equity
81 lakh equity shares
Lead Managers
Arihant Capital Markets
Listing
BSE
Retail Portion
11-14 lakh equity shares
QIB Portion
16-20 lakh equity shares
Non Institutional Portion
5-6 lakh equity shares
  

Financial Performance (Rs /Cr)

 

9MFY11

FY10

Total Income
81.61
32.37
Operating Expenses
77.69
31.34
Operating Profit
3.92
1.04
Depreciation
0.24
0.29
Net Profit
2.32
0.43
   

Share Holding Pattern

Pre Issue

Post Issue

Promoter & Promoter Group
88.83
65
Others
11.17
8
Public
 
27

Total

100

100

  

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