Texmo Pipes IPO opens; should you subscribe?

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Texmo Pipes IPO opens; should you subscribe?

The initial public offering (IPO) of Texmo Pipes and Products, a PVC and HDPE pipes manufacturer, opened for subscription. Brokerage houses looked pessimistic about this issue and even Investment Advisor SP Tulsian said it's too expensive at the lower price band.

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SPA Securities said, "The shares of TPPL are available at a P/E of 16.6x & 17.6x on the lower end & upper end of the price band respectively on its annualised FY10E EPS of Rs 5.12. This is on the higher side in comparison to its peers which are available in the range of 7.4x - 11.7x. The pipe industry looks to be promising in the next few years with the government urge on infrastructure and demand for pipes coming in from other sectors like oil & gas, agriculture, etc. The shift from the GI (galvanized iron) pipes to PVC pipes provides significant opportunity to PVC pipe manufacturers like TPPL."

"Post the consolidation, the company has been able to improve its margins but given the fact that the production in PVC pipes increased from 6800 MT to 18,506 MT from FY 08 to FY09, the margins were more or less stagnant. In this industry, the high margin products are fittings & mouldings, which the company intends to make from next year. The capacity utilization of the firm has been low (33.7% in FY09) & TPPL expects this to decrease to 32.4% in FY10. TPPL has no tie-up for sourcing raw materials for its CPVC pipes business. Hence we recommend, avoid to the issue," according to SPA Securities.

About the issue

The issue comprises a reservation of 1 lakh equity shares for eligible employees, and net issue of 49 lakh equity shares. The issue would constitute 44.37% of the fully diluted post issue paid-up capital of the company while the rest of the equity will be with the promoters. It will close for subscription on February 19, 2010.

The company plans to raise Rs 42.50-45 crore from this issue. The market cap of the company will be Rs 101.43 crore post the issue.

The issue proceeds will be used for expansion of product range; setting up manufacturing facilities for injection mouldings/fittings and woven sacks and meeting long term working capital requirements. The company has requirement of Rs 11.32 crore, Rs 22.06 crore and Rs 10 crore, respectively for the above objects.

The book running lead manager to the issue is Almondz Global Securities Limited and Karvy Computershare Private Limited is the registrar.