Loha Ispaat: Eying IPO To Raise Funds

IPOs hitting the market are an indicator suggesting that the overall market conditions are improving in the equity marketplace. Mumbai based Loha Ispaat is one such company looking to strike the primary capital markets through its Initial Public Offer (IPO). The company plans to raise funds to the sum of Rs 206 crore to Rs 213 crore in its respective price bands of Rs 77 to Rs 80 per share. The company is issuing 2.67 crore equity shares of face value of Rs 10 each.

Let us first look at why the company needs this quantum of money before digging deep into the other aspects of the IPO. In the red herring prospectus, the company has mentioned that it looks forward to raise this money to fund the working capital requirements at its facilities in Khopoli and Taloja in Maharashtra. The company has two steel processing plants, one at Khopoli with installed capacity of 9 lakh TPA and has proposed to increase it to Rs 12.81 lakh TPA. The second plant of the company is at Taloja where it operates manual pickling of HR sheets and plates with annual capacity of 1.05 lakh TPA. It is setting up cold rolling mill with a capacity of 0.30 lakh TPA in Taloja facility. The fund raised through the IPO process will be used to augment the working capital need of the company. But it will not go in the expansion as it will be funded by the mix of debt and equity. 

The company is a Steel Service Centre which is an intermediary link between steel producers and end users. The main role of a Steel Service Centre is to perform processing requests on steel products as per customer specifications and supply the product in the exact dimensions, form and quantity demanded by customer. The company has 500 different clients base diversified all over India and the top ten clients account for less than five per cent of total sales of the company. 

Company has shown compounded annual average growth of 31 per cent in its total income for the four year ending FY13 and was Rs 3435.7 crore for FY13. Net profit, however, in the same period has recorded CAGR of just 15 per cent of growth and is Rs 70.4 crore for FY13. One of the reasons for such difference in its sales and profit growth figure is increase in interest cost that has gone up at a rate of 51 per cent every year between FY10 to FY13.

The reason for such a rise in interest burden is the big amount of debt company is using for its working capital requirement. The company is operating at very low profit margin of around two per cent. 

One important thing to note in the financials of the company is that though the sales of the company in FY13 has increased by 18 per cent on yearly basis the trade receivables in the same period has increased by 73 per cent. There are certain other issues that need to be clarified by the management of the company. The company has not done press conference or analyst meet yet. Once that is done we will get more clarity on the functioning and financials of the company. The issue is going to hit the capital market on March 11, 2014. Please watch out for our website, email and SMS alerts to know whether you should subscribe the issue or not.