Tile in the wall

IPO REVIEW

Asian Granito India IPO is attractively priced and could bring listing gains.

The booming real estate sector and replacement demand has augured well for the growing tiles industry. The Indian tiles companies are adding new capacities given the mismatch in demand supply and a positive outlook for the next few years.

Asian Granito India, one of the largest players in the domestic tiles industry is raising funds through its initial public offer of Rs 59-71 crore. The company is a manufacturer of vitrified tiles and has 11-12 per cent market share in Rs 1,500 crore vitrified tiles industry.

Asian Granito is a diversified player having presence across different parts of the country. Its institutional clients, which accounts for 50 per cent of sales includes some of the well-known real estate players such as Kalpataru, Omaxe and Unitech.

The company has aggressively expanded its capacity in the past, which has in turn boosted its financial performance. The standalone net profit has grown at 118 per cent a year while sales has grown at 149 per cent a year for the last three years.

To maintain its growth, the company is further entering into the manufacturing of wall tiles and expand its existing vitrified tiles capacity by 2,000 sq metre per day (SMPD) to 16,000 SMPD.

The company will spend about Rs 49 crore for building 3.4 million sq metre a year of wall tiles capacity. This plant is expected to be commissioned by January 2008 and will fully reflect in Asian Granito's FY09 earnings. 
 

GLAZED NUMBERS
Rs crore	FY07	FY08E	FY09E
Sales	168.19	228.00	325.00
Net profit	22.98	31.90	47.45
OPM (%)	23.30	23.40	24.00
EPS	10.94	15.19	22.60
PE @ 85	7.77	5.60	3.76
PE @ 102	9.32	6.71	4.51

These tiles are priced between about Rs 450-500 per sq metre. The estimated sales from this segment alone could be in the range of Rs 122 crore at 80 per cent utilisation in FY09.

Within the wall tiles segment, the company will enter into high-end long tiles, which are considered high margin.

India imports these tiles to the tune of Rs 300-400 crore every year as there is no capacity in the domestic market leaving huge scope for the domestic players.

Besides the domestic market, the company is also expecting to export about 15 per cent of these tiles in the UK, the US and the Middle East markets.

Along with the addition of new capacity the company is also investing in expanding its distribution through sales depot and opening up of new showrooms.

Considering that there is higher industry demand and untapped replacement market, there is enough scope for the company to grow over the next few years.

On the valuations parameters, the other listed players are trading at about 12-14 times FY07 earnings, Asian Granito's issue is relatively attractive at 7.7-9.3 times fully diluted.

Issue opens: July 26
Issue closes: July 31