Bothra Metals To Come Up With An IPO

Bothra Metals & Alloys Ltd (Bothra) once again has plans of getting listed on the BSE SME platform after withdrawing its DRHP for listing on BSE because of some amendments in the SEBI regulations. As per the DRHP, Bothra is coming up with an initial public offering (IPO) of 48.84 lakh equity shares, out of which 46.32 lakh equity shares will be issued to the public and 2.52 lakh equity shares will be reserved for market makers.

This IPO constitutes of both fresh issue of shares and offer for sale by existing shareholders. The selling shareholders will offer 22.92 lakh equity shares and the fresh issue will include 25.92 lakh equity shares. The offer price per share is fixed at Rs 25 for this issue. The total outstanding equity shares prior to issue are 159.18 lakh, of which 185.10 lakh equity shares will remain after the issue. The company is expecting to raise an amount of Rs 1,212 lakh through this issue offering.

Bothra intends to use these funds for its working capital requirement at its Sangli plant in Maharashtra. This plant is involved in manufacturing of aluminium extrusion and non-ferrous metal alloys. Also, through this IPO, it wants to get listed on the BSE SME platform.

The company was incorporated in the year 2001 and was traditionally involved in the business of trading of metals. Later in 2007, the company established its first manufacturing plant at Himachal Pradesh and started its operations. It is involved in the manufacturing of aluminium extrusions, aluminium ingots, aluminium shots and non-ferrous metals alloys. It offers a wide range of products with different profiles of aluminium like flat bars, tubes etc. 

Currently, Bothra has manufacturing plants at Kala-amb (Himachal Pradesh), Bhavnagar (Gujarat) and Sangli (Maharashtra). It has branches in Delhi, Rajasthan, Gujarat and consignment offices in Uttar Pradesh and Punjab.

Moreover, the metal company has a net worth of Rs 2,082.18 lakh and has earned a net profit of Rs 352.97 lakh in FY12. The company provides a range of products to sectors like building and construction, transport, automobile, marine, beverage, packaging and electrical & mechanical engineering.

From the last one year, industry growth has showed a downturn. Sectors like power, automobile and construction on which the aluminium industry majorly depends, has showed a decline in its growth, thus affecting the aluminium industry. In India, the aluminium industry leaders like Hindalco, Nalco and Sterlite Industries Ltd, which are also the global players, have showed decline in their growth too. Growth was majorly affected due to the decline in demand from China, which is one of the big consumers of aluminium, coupled with a down fall of industrial activities in India. But in the near future, demand from China is expected to increase by 18%, owing to a fast recovery in China's economy.

Further, the Indian aluminium demand is also expected to increase by 14% in the forthcoming period, led by the development in industrial activities and automobile industry. 

However, considering the size and reach of Bothra, we are sceptical about the benefits Bothra would get because of the uncertainty in China's demand and India’s economic recovery. Further, the company is more into the vanilla business, which has lower entry barrier. On the valuation front too, the price offered by Bothra of Rs 25 is expensive, considering its competitive advantage in the industry as compared to listed big players and the current aluminium industry outlook. Hence, we recommend investors not to subscribe to this public offering.