Know Your IPO : TENTIWAL WIRE PRODUCTS

Tentiwal Wire Products, is engaged in manufacturing Polyester & Polypropylene Insulated Winding Wire is set to come up with its public issue very soon. The company has filed draft prospectus to list its shares on the BSE (SME Platform of BSE).

Tentiwal Wire Products is offering 16.3 lakh equity shares of which 90,000 equity shares are reserved for market makers. At a fixed price of Rs 13 per share the company aims to raise funds to the tune of Rs 200.20 lakhs. The company has hired Hem Securities Limited as lead managers for the issue.

Company started its operations in 1995 by manufacturing Polyester & Polypropylene Insulated Winding Wire for Submersible Motor Pumps and have expanded their business in various other types of Winding Wires since then. Company has customer base in 12 states all over India. However there is no dealer, distributor network for Company products in India as well as abroad.

The company intends to utilise the raised funds to reduce its overall debt by repaying the outstanding loan from Aditya Birla Finance (ABFL). Outstanding loan from Aditya Birla Finance as on June 30, 2013 stands at Rs 125.55 Lakhs. It plans to utilise Rs 31.35 lakh for general corporate purpose Rs 31.35 lakh and an amount of Rs 55.00 lakh for issue expenses.

On the financial front, the company posted revenue of Rs 41.07 crore during the fiscal 2013, registering a growth of 37% from FY12 which stood at Rs 30 crore. However, its EBITDA margin stands at mere 1.98% in FY13.  The company has posted only Rs 55.99 lakh  net profit  in FY13 as against 35.61 lakh in FY12.

Moving on to valuations, with the offered issue price of Rs 13 per share, the shares will be valued at a FY13 PE of 25.5x. Its peer companies in the listed space like Ram Ratna Wires, Precision Wires India, Nissan Copper, Century Extrusions are trading at a FY13 PE of  4.6x, 4.13x, 0 and 1.02x respectively. Which looks expensive, also the company has a huge debt at present.

Moreover, the companies debt equity ratio stands at 3.32x as on 30.06.2013 has been quite high due to which   margins have been adversely affected. Company been incurring heavy financial costs due to high debt by way of loan/over draft facility obtained from Banks and Non- Banking Financial Company with regards to expansion activities undertaken by the Company in the past year. Further, there is no entry barrier in this industry, which enables the company to command a low premium putting pressure on its bottomline. Hence, we recommend our readers to stay away from this public offering.