Sejal Architectural Glass IPO Analysis – Avoid
Strengths
The proposed plant would be eligible for 100% income tax deduction for the first five years after the commencement of the commercial production and thereafter at 30% for the next five years.
The growth in real estate sector, especially in commercial offices, residential housing and retail industry will give boost to the glass and glass products industry.
Weaknesses
Operating in a highly competitive industry.
Had a negative cash flow (from operating activities) of Rs 46.34 crore in the nine months ended December 2007 and Rs 10.02 crore in the year ended March 2007 (FY 2007).
Depends on few customers for its business. Top three customers accounted for 54% and top 10 74% of the total turnover in the nine-month period. The loss of any one or more customers would adversely affect business.
Float glass plant is to be set up by taking huge debt. The float glass industry, apart from being capital-intensive, is dominated by a few large global players and is categorised by profit cyclicality. Ability to stabilise and upgrade a float-glass plant and also sell about six times current volume of glass remains to be seen.
Valuation
Sejal Architectural Glass has set a price band of Rs 105 to Rs 115 per equity share of face value Rs 10. At the lower band, the P/E would be 47.7 times the annualised EPS in the for nine months ended December 2007 and 105 times the annualised EPS in FY 2007 on post-issue equity of Rs 28 crore.
At the upper price band, the P/E would be 52.3 times the annualised EPS in the nine months ended December 2007 and 115 times the annualised EPS in FY 2007 on post-issue equity of Rs 28 crore. Considering the sector TTM P/E of around 18 and the risks involved, the issue price is very high
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