Electrosteel Steels IPO opens; should you subscribe?

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Electrosteel Steels IPO opens; should you subscribe?

Electrosteel Steels (ESL), a subsidiary of Electrosteel Group, entered capital market with a public issue of 22,55,16,188 equity shares.

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Electrosteel Steels (ESL), a subsidiary of Electrosteel Group, entered the capital market with a public issue of 22,55,16,188 equity shares. It has set a price band of Rs 10-11 a share for its issue, which closes on September 24.

The company is promoted by ElectroSteel Casting (ECL) to setup a 2.2 MTPA integrated steel and ductile iron spun pipes project in Jharkhand. The company intends to use issue proceeds for this project as well as for margin money towards bank guarantees.

Invesment Advisor, SP Tulsian advised avoiding this issue while brokerage houses recommended investment with a long-term perspective.

Tulsian said, "Though the company hopes to start commercial production from October 10, it is bound to get delayed, considering the progress of the project, which may happen by March 11, till it stabilizes with the commercial production. High equity base of the company at over Rs. 2,000 crores, low promoters stake of 34%, stiff competition in the sector, low financial capability of the promoters, high debt equity ratio of close to 2.5:1 are all risky and unfavourable features of the issue."

"One should not get lured by the low price tag of the issue, as it can even slip below its face value, in the event any delay or losses being posted by the company in the initial period, chances of which are high and likely," he said.

KR Choksey said, "ESL has a strong backing from the experienced management team of Electro steel Casting Limited, which has been in the business of manufacturing CI Spun Pipes for over four decades and D.I. Pipes since the last 15 years. We expect steel production in India to grow at a CAGR of 13.8% in next five years. ESL planning to set up an integrated plant along with the necessary raw materials linkages in place will help the company to post higher margins and better numbers once the plant is commissioned. Hence we recommend a subscribe for the IPO."