Incorporated in 1979, Commercial Engineers & Body Builders Company (CEBBCO) is a manufacturer of bodies for commercial vehicles (CVs). It also undertakes refurbishment and manufacturing of wagons, coaches and locomotives for the railways. It has four factories in Madhya Pradesh and one in Jharkhand.
CEBBCO plans to raise Rs172 crore via the issue. Of this, Rs80 crore will be spent on setting up a plant in Jabalpur for manufacturing 1,200 wagons and 150 EMU coaches per annum. Around Rs60 crore will be used to prepay debt and Rs19.4 crore is an offer for sale from existing investors.
In FY10, CEBBCO derived almost three-fourth revenue from the CV segment. During the last five years, it has earned more than 50 per cent of its revenue from Tata Motors, which reflects high client concentration. The focus on the railway industry will enable CEBBCO derisk its business from the cyclicality of the CV industry. It is looking for a 50-50 sales break-up.
| STEADY GROWTH | ||
| In Rs crore | FY '09 | FY '10 |
| Sales | 112.05 | 182.86 |
| Ebitda (%) | 8.39 | 22.59 |
| Net profit | 1.74 | 19.19 |
| Source: Company RHP | ||
| ISSUE DETAILS | |
| Price (Rs) | 125-127 |
| Size (Rs crore) | 172.1-172.4 |
| Opened on | 30-Sep |
| Closes on | 5-Oct |
| Crisil grading | 2/5 |
Notably, as against close to 14 per cent operating margins in the CV segment, margins from refurbishment of wagons are a handsome 30 per cent.
On the flip side, CEBBCO is a relatively new entrant in the railway wagons manufacturing business and could face stiff competition from well-established players like Titagarh Wagons and Texmaco, among others (the industry has 12-15 established players). So, its ability to scale up this business will need to be watched.
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CEBBCO’s top line grew at a compounded rate of 38 per cent during FY06-10 while bottom line grew 66 per cent. This robust growth is partly due to the small base.
Its order book stands at a robust Rs624 crore, which provides revenue visibility over the next three years.
At the upper price band of Rs127, the stock commands a price to earnings (P/E) of almost 40 times its FY10 earnings based on post-IPO equity. Even assuming 35 per cent growth in earnings in the current year, the PE works out to 29, which is steep.
The company’s plant has already been delayed. Any further delays may hit profitability. Avoid.