Karnimata Cold Storage To Go Public, Will Propose 15. 18 Lakh Equity Shares

A West-Bengal based company, Karnimata Cold Storage (KCSL), is all set to enter the capital market with its initial public offering. The issue will open on 25 February and will close on 3 March 2014. KCSL is offering 15.18 lakh fresh equity shares at a fixed price of Rs 20 per share. It has plans to raise an amount of Rs 3.04 crore through this issue. The public issue comprises of 78,000 equity shares reserved for market makers (Aryaman Financial Services) who are also the lead managers to the issue. The shares of the company will be listed on BSE SME platform. 

KCSL established in the year 2011, is primarily engaged in the business of construction and maintenance of cold storage facility in India. Besides that the company trades in agricultural commodity especially potatoes. The company’s only cold storage facility is located in West Bengal having a capacity of storing 1.81 lakh quintals of potatoes. In addition, the company is in process of expanding its storage capacity by 75,000 quintals at the same location.

On financial front, KCSL revenue is expected to be Rs 4.06 crore annualised for (six month period) financial year 2013-14, registering a growth of 7.6% on yearly basis. Further, due to the heavy rise in other expenses during the year, its annualised operating expenses for FY14 are expected to increase by 17% to Rs 2.4 crore, which in turn will impact the operating income (contraction by 3.5% from Rs 1.72 crore in FY13) of the company. However, the expected drop in annualised finance expenses, the net profit (annualised) is expected grow to Rs 9.3 lakh from Rs 2.8 lakh in FY13.

Moreover, KCSL has plans to use the issue proceeds to augment its capital base. The company will utilise Rs 5.16 crore ( net proceeds and loan from bank) to provide seasonal loan to the farmers and traders who are the hirer of their cold storage.

Indian cold storage sector is highly fragmented and has good growth opportunities. The major portion of the sector is operated by unorganised market. The overall production of perishable product in India is over 350 million tons per year. In India, the growth of cold storage sector is widely impacted by the various challenges like higher cost for setting-up and operating the cold storages, the seasonality of product stored, irregularity of electric power supply (which is one of the most essential factors in cold storage system) and poor infrastructure. As per market studies, about 30% of the overall produces is wasted every year due to the lack of storage and other related facilities.

On valuations front, KCSL’s peer in listed space Brahmanand Himghar is trading at trailing twelve month PE 4.7x. KCSL has quoted Rs 20 per share and will trade at PE of 109x of annualised EPS of Rs 0.18, which seems expensive compared to its peer. Also, the higher input and operational cost of cold storage facilities and lower realization makes it less attractive to invest in the company. So, we recommend investors not to subscribe to this issue.