Company profile:

The defense PSU company was established in the year 1973 for achieving self-reliance in the R&D and supply of critical alloys and products that hold strategic importance. The company accorded with the status of Mini Ratna, category-I company in 2009 is engaged in the manufacturing of advanced metallurgical products of special metals and superalloys. Further, the company is the only titanium alloy manufacturer in India.
The company caters to aerospace, power generation, nuclear, defence and other general engineering industries

Issue details:

For the face value of Rs.10, the company has pegged the price band for the issue between Rs. 87-90 per equity share. Investors can bid for a minimum of 150 equity shares and in multiples of 150 equity shares thereafter.

The offer reserves up to 1,873,400 equity shares for subscription by eligible employees. The company has offered a discount of Rs 3 per equity share on the offer price for retail investors and eligible employees.

SBI Capital Markets Ltd and IDBI Capital Markets & Securities Ltd are the book running lead managers. The registrar to the issue is Alankit Assignments Ltd. The shares of the company are listed on both NSE and BSE.

Issue objective:

The prime object with which the issue is floated is divestment of 46,835,000 equity shares by the selling shareholder which in the case is GoI. The selling stake is equivalent to the 25% of the company's pre-issue paid up equity capital. Remember the proceeds of the issue will not go to the company as it is a complete OFS issue and will instead go to the selling shareholder

Financials:

 The company as per the DRHP filed with the SEBI reported profit after tax of Rs 273.01 million against the combined revenue of 2,206.61 million for the six months period which ended on September 30, 2017. The company for last 5 fiscals has on a consistent basis reported profits. While total revenues for the company registered a CAGR of 9.77% between 2013-2017, its net profit posted CAGR growth of 11.23% during the same period.

Valuations:

At the upper price band of Rs 90 per share, the company's asked P/E is 13.3 times FY17 earnings. So, in light of the robust financials, balance sheet and growth over the years, the issue is reasonably valued.

Conclusion:

 Top brokerages hold either an ‘Avoid' or ‘Subscribe' rating for the issue. The company uses some of the advanced technologies such as vacuum based melting and refining and can reach out to newer markets with its product line But its thin order book of Rs. 517 crore in comparison to FY 16 & FY 17 makes the issue less promising and hence an Avoid call.

On the other hand, brokerage houses like Prabhudas Lilladher have given a subscribe rating given the immense growth potential on the sidelines of the company's plan to set up facilities at Rohtak and Nellore. At the Rohtak plant the company will manufacture bulletproof Jackets, bulletproof vehicles and armour products, etc.

Nonetheless, given the company's complete dependence on the govt. which makes pricing limited and potential risk due to possible policy changes in the defence and space research, the issue is a risky bet for retail investors. So, only investors with risk appetite can bet on the issue for a long-term perspective. Also, it must be noted that given the current market environment the listing gains may be capped.

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