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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BSE | NSE 10/02/12

The initial public offering (IPO) of Texmo Pipes and Products, a PVC and HDPE pipes manufacturer, is open for subscription. The price band for the 50 lakh shares issue is at Rs 85-90 per share.

Brokerage houses looked pessimistic about this issue and even Investment Advisor SP Tulsian said it's too expensive at the lower price band.

Tulsian said, "For the seven-month period ended October 31, 2009, the company's cash and bank balance was at Rs 1.15 crore. Its loans, secured as well as unsecured stood at Rs 25.88 crore, which is almost six times its earnings. With interest rates expected to start going up, this size of debt for the size of operations which the company has, does not seem like a good idea. Even net worth of Rs.15.22 crore results into a debt equity ratio of 1.70:1."

"At the upper price band of Rs 85, its PE based on EPS as at 31st March 2009 is at 12.50 times and at 13 times on the upper price band of Rs 90 per share. It is in direct competition with the likes of Kisan Moulding, Precision Pipes, Tulsi Extrusions, which are ruling at lower PE multiples. This is a typical low margin kind of industry and investor fancy for the same is also poor. Like is the practice nowadays, we may see listing gains but this would have nothing to do with either the fundamentals or the investor fancy for the IPO. Too expensive even at the lower price band," he has said.

Brokerages views

Hem Securities says, "The company is bringing the issue at price band of Rs 85-90 per share which will have the P/E multiple of 16.61-17.58 at post issue annualized EPS of Rs 5.12. Looking at the financials of company, the topline of company has witnessed downfall in FY 2009 as compared to FY 2008. Also the listed peers of company like Precision Pipes and Tulsi Extrusions are trading at P/E multiple of less than 11. Hence looking at the valuations of company, we recommend investor to avoid the issue."