Timbor Home IPO Starts Today: Analysis

Stocks

oi-Shoaib MD

By Shoaib Md

Published: Monday, May 30, 2011, 12:52 [IST]

Timbor Home, a Gujarat-based, is a furniture manufacturing and retailing company. The company's IPO issue starts today, May 30 and will continue be available for investment till June 2.

The company will be offering 36,90,000 equity shares with the aim of raising Rs 23.2 crore, if the IPO is successful at the upper band.

Post completion of IPO, the promoters will hold 50%, and private equity will have 25% of the shareholding, the remaining 25% will be held by new retail investors.

Of the total proceeds from the issue the company plans to use Rs 2.6 crore for capacity expansion, Rs 4 crore for establishing stores, Rs 13.2 crore for working capital requirement and the remaining amount for other purpose.

With its 80 stores for selling kitchen, door and furniture, and its 3 factories, the company operates as a manufacturer and retailer. The company also operates on a franchise model. Timbor Home has two of its manufacturing facilities at Ahmedabad and one in Anand, Gujarat.

The company in its prospectus has mentioned that the Indian Furniture market is worth approximately Rs 36,000 crore ($8 billion, if $1 is Rs 45). Only 15% of the sector is organized. And the sector is expected is growing at 30% CAGR.

Timbor Home argues that demand in in the furniture sector is plenty since there is a real estate and housing boom after the economic slow down in late 2008. There will also be a demand from the hospitality sector as tourist inflow increases and new infrastructure is built to meet the demands.

As per report titled, "The furniture market in India Profile 2009", by Italian Trade Commission, the major companies in furniture retailing are Pantloon, Shopper Stop, Trent, RPG, Vishal Retail, Reliance, TATA and Godrej.

Net sales reported by Timbor Home in FY10 was Rs 51 crore. Over the last four years, the company's net sales went up at a compounded annual growth rate of 65%. During the same period, its net profit went up from Rs 10 lakh to Rs 1.8 crore.

In FY10, their operating profit margin was 10.7% for FY10. Net profit margin was supposed to be at 3.5%. After the IPO, the debt-equity ratio of the company would be around 0.3 times.

The company's working capital has increased from 184 days to 217 days over the past-year. Its sundry debtors have almost doubled for the first nine months of FY11 as against FY10. Also, cash flows from operating activities have been negative over the past six years as the company is in a growth phase.

For the first 9 months of FY11, the company has given profit before tax of Rs 3.06 crore, but it has not given any profit after tax during the same period. If we assume the tax rate at 33%, the company's annualised profit will be Rs 2.73 crore. This will give an earning per share (EPS) of Rs 1.9. Now at the upper price band of Rs 63 per share, the Timbor Home demands a price earning (p/e) ratio of 33.3, post dilution.

Comparing it with a peer is not easy. Acrysil, which manufactures retail kitchen products, is trading at a multiple of 5.7; where as Greenply, which makes laminates, decorative veneers, plywoods is also trading at 11.25. By comparing it against both - Acrysil and Greenply -, Timbor Home has priced its IPO very aggressively.

Considering the weak financial and aggressive valuation, investors should avoid buying this IPO.

Details regarding listing:
The issue would constitute 25% of the fully diluted post Issue paid-up equity capital of the company.
The price band has fixed between Rs 54 and Rs 63 per equity share.
The minimum bid lot will be 90 equity shares and in multiples of 90 equity shares thereafter. The issue
will close on June 2, 2011.
The equity shares are proposed to be listed on Bombay Stock Exchange (BSE) and National Stock
Exchange (NSE).
The book running lead manager to the Issue is Corporate Strategic Allianz Limited.
Promoters - Anant Sureshchanda Maloo, Manan Vidyapati Patel, Abhijeet Dwarkadas Daga, Maloo Building Material Private Limited and the promoter group together hold 63.26% stake in the company.
Other investors - Bennett Coleman & Co. Ltd own 26.5%, Writers and Publishers Ltd. of Dainik Bhaskar Group holds 2.51% while Brand Equity Treaties hold 3.09% stake in the company.

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