Bedmutha Industries is a steel wire manufacturer and offers products such as galvanised wires, cable armour wires, etc, which are used in the roads, bridges and power sectors. It plans to raise Rs 86-92 crore via a public issue to funds its proposed Nashik plant for the manufacture of low relaxation pre-stress concrete (LRPC) wires and spring steel wires. The plant is estimated to cost Rs 85 crore.
The company has a target to utilise 80 per cent of its current 60,000 metric tonne per annum (mtpa) installed capacity this fiscal as against 56 per cent in 2009-10. While higher utilisation should help increase its revenues by 30-40 per cent this year, the near doubling of its capacity (aided by 54,000 mtpa at its new plant) should help sustain volume growth in future.
For the proposed plant, the company will also receive a sales tax incentive up to 20 per cent of the capital expenditure, exemption in stamp duty and subsidy in electricity duty.
The company has a 54.75 per cent subsidiary, Kamalasha Infrastructure & Engineering, which undertakes turnkey projects. While this is a forward integration move, some of Bedmutha’s output is also consumed by this subsidiary.
While steel is the major raw material it uses, the company is able to pass on the full cost escalations to the customers, making its margins immune to steel price fluctuations. While the typical risks include a delay in setting up the LRPC plant, the company is also exposed to currency risks as it imports 40-50 per cent of its raw material requirement.
While the financials are not comparable due to the consolidation of Kamalasha in 2009-10, the numbers look decent. However, the debt-equity ratio is high at over three times, which the company claims will fall to below one time post the IPO. At the upper price of Rs 102 and assuming a 35 per cent earnings growth for 2010-11, the PE works out to 13 on the post-IPO capital. The valuations don’t look cheap given the nature of the business and largely factor in most of the future growth. Investors may skip this offer.