 "Pennar Engineered Building Systems designed for success")
Pennar Engineered Building Systems (PEBS), a subsidiary of Pennar Industries, has launched an initial public offering (IPO) to raise Rs 152-156 crore, including fresh issue of shares of up to Rs 58 crore. The rest is an offer for sale of 55.16 million shares. The virtually debt-free company plans to use Rs 34 crore for debt repayment and Rs 8 crore for financing infrastructure for the expansion of design and engineering services.
The building systems sector, though nascent, is growing fast. The benefits offered by pre-engineered buildings such as durability, lower costs, less weight, faster execution, superior quality control and earthquake-resistance, are fuelling growth and demand for such structures. The sector is estimated to grow at a compounded annual rate of 21 per cent to Rs 11,134 crore during FY15-17. While the sector is competitive, the ability to erect complex structures using technical excellence gives PEBS an edge.
The company has an arrangement with NCI Group, US, for a particular type of roofing and is one of the few companies offering leak-proof roofing systems in India. Besides, PEBS has a strong team of 147 technical personnel.
The company has licensed some latest/advanced software in CAD technology and manufacturing in the US and is expanding this higher-margin business.
It has 156 ongoing projects across 20 states, with a total order book of Rs 360 crore. Historically, half its revenues are accounted for by repeat orders, while the other half is from new customers. Key customers include UltraTech Cement, Reliance Jio, IOC, Volvo India and Larsen & Toubro.
PEBS’s expanded production capacity is 90,000 tonnes a year, the second-highest in India, and ahead of the 30,000-tonne capacity of Tata BlueScope Steel. But since it is present in the South, PEBS’s manufacturing capacity can predominantly cater to customers in southern and western India alone. The company plans to expand its presence in the North by setting up a facility in the region.
The company has a very lean working capital requirement (17 per cent of sales in FY15). Cash flows, too, remain strong. Jignesh Kamani at Nirmal Bang Institutional Equities says at the upper band of the IPO price of Rs 178, the offer is attractively placed at 15.5/7.6 times the FY17 estimated price-to-earnings and enterprise value/earnings before interest, tax, depreciation and amortisation (Ebitda), respectively. Kamani expects revenue, Ebitda and net profit to grow at compounded annual rates of 22.7 per cent, 24.4 per cent and 32.4 per cent, respectively, over FY15-18. He adds with that, coupled with a decline in working capital requirement at 11.8 per cent (of sales), leading to a healthy operating cash flow of Rs 132 crore, a debt-free status with cash surplus and a 371-basis point improvement in post-tax return on invested capital to 24.9 per cent from 21.2 per cent over FY15-FY18, the company should command premium valuations.
The building systems sector, though nascent, is growing fast. The benefits offered by pre-engineered buildings such as durability, lower costs, less weight, faster execution, superior quality control and earthquake-resistance, are fuelling growth and demand for such structures. The sector is estimated to grow at a compounded annual rate of 21 per cent to Rs 11,134 crore during FY15-17. While the sector is competitive, the ability to erect complex structures using technical excellence gives PEBS an edge.
The company has an arrangement with NCI Group, US, for a particular type of roofing and is one of the few companies offering leak-proof roofing systems in India. Besides, PEBS has a strong team of 147 technical personnel.
The company has licensed some latest/advanced software in CAD technology and manufacturing in the US and is expanding this higher-margin business.
It has 156 ongoing projects across 20 states, with a total order book of Rs 360 crore. Historically, half its revenues are accounted for by repeat orders, while the other half is from new customers. Key customers include UltraTech Cement, Reliance Jio, IOC, Volvo India and Larsen & Toubro.
PEBS’s expanded production capacity is 90,000 tonnes a year, the second-highest in India, and ahead of the 30,000-tonne capacity of Tata BlueScope Steel. But since it is present in the South, PEBS’s manufacturing capacity can predominantly cater to customers in southern and western India alone. The company plans to expand its presence in the North by setting up a facility in the region.
The company has a very lean working capital requirement (17 per cent of sales in FY15). Cash flows, too, remain strong. Jignesh Kamani at Nirmal Bang Institutional Equities says at the upper band of the IPO price of Rs 178, the offer is attractively placed at 15.5/7.6 times the FY17 estimated price-to-earnings and enterprise value/earnings before interest, tax, depreciation and amortisation (Ebitda), respectively. Kamani expects revenue, Ebitda and net profit to grow at compounded annual rates of 22.7 per cent, 24.4 per cent and 32.4 per cent, respectively, over FY15-18. He adds with that, coupled with a decline in working capital requirement at 11.8 per cent (of sales), leading to a healthy operating cash flow of Rs 132 crore, a debt-free status with cash surplus and a 371-basis point improvement in post-tax return on invested capital to 24.9 per cent from 21.2 per cent over FY15-FY18, the company should command premium valuations.
In this backdrop, the prospects of PEBS look promising. Looking at the volatile market conditions, investors should look at medium to long term investment horizon and not listing gains.