Asit C Mehta has come out with research report on Cords Cable Industries IPO. The firm has recommended subscribing to the issue.
Cords Cable Industries, a leading ISO 9001-2000 certified specialised cable manufacturer for variety of industries, has opened for subscription with an initial public offering (IPO) of 30,85,000 equity shares of Rs 10 each for cash at a price to be decided through a 100% book-building process. The issue will close for subscription on January 24, 2008. The price band is between Rs 125 and Rs 135 per equity share.
Asit C Mehta report on Cords Cable Industries IPO
Key Positives
Cords has posted 81% rise in net sales and 94% rise in net profit for first half of current financial year (FY08). Net sales has increased from Rs 370 million in H1 FY07 to Rs 670 million in H1FY08 and net profit from Rs. 28mn in H1 FY07 to Rs 54 million in H1 FY08. Raw materials being key concern for the cable industry, effective raw material management can play an important role in profitability of the business. Cords enters into forward contracts for hedging risk of some of the raw materials like copper and aluminium which contributes around 50 –70 % of total cost. Cords have regular suppliers for almost all the required raw materials. Cords has order book of Rs 772 million as on November 30, 2007. Two third of orders are from power and cement sector. Power sector contributes 48% of order book. Cords caters to wide range of industries and has strong client base in most of these industries. Cords’s Top ten clients contributed 53% of net sales in H1FY08. Among these ten, PSU clients like BHEL and NTPC contribute 20%. Power sector is going through reforms to bridge the gap between demand and supply. Government’s mission “power to all by 2012“and measures to achieve this objective provides growth opportunity in power sector. Cords’s 50% revenues come from power sector, and reforms in power sector and measures to reach the target of power sector is expected to offer good growth opportunity for the company. Key concern
Slowdown in economy can affect the financial performance of the company, since company is heavily dependent on growth of power sector and other industries.
Valuation
At lower price band P/E is 12.9x and at the upper price band P/E is 13.9x for post issue annualized EPS of Rs. 9.72 for FY08. Considering its business strategy of diversified revenue stream and past financial performance, the issue looks fairly priced hence we recommend subscribe to the issue of Cords Cable Industries.
