Buy large cap textile stocks, not Shekhawati: Udayan

Textile firm Shekhawati Poly-Yarn will be listing its equity shares today. The company raised Rs 36 crore through its initial public offering (IPO) of 1.2 crore equity shares at a fixed price of Rs 30 a share. However, Managing Editor of CNBC-TV18, Udayan Mukherjee feels that one should get into better textile company instead of Shekhawati.

Udayan explains, "One sould stay away from small companies like Shekhawati Poly-Yarn post listing. Instead get into largecap companies which have better prospects. Shekhawati was subscribed 7 times and is a small yarn company with Rs 100 crore net sales and enterprise value comes to Rs 120 crore." "It will make Rs 5-6 crore in profit for FY11 and has market cap of Rs 70 crore. So it is available at 12 PE which is way above industry PEs. If one wants to stay in yarn or textile business, should get into largecap companies with 5-6 PE. Going forward, such kind of companies will not be active or traders' favourite any more," he adds. Below is a verbatim transcript of his comments on CNBC-TV18. Also watch the accompanying video. We should stay quite far from it post listing. Anyway I think smallcap investing is not in vogue, people need to be in largecaps and the safety of that in this kind of a market. I was surprised to see it subscribe 7 times its issue, but run of the mill yarn company Rs 100 crore kind of top-line, enterprise value of Rs 120 crore. Even if you say that they will do Rs 5-6 crore of profits this year on their marketcap of 70 crore, you are asking for 12 P/E multiple which is way above the sector average. Anyway it is too smallcap a name. If you have to buy textile or yarn companies, you should look at much larger companies, stable companies in this space which you can find at 5-6 kind of P/E multiple. So, no reason that one can see of getting into a smallcap like this. Generally, I think 80% of smallcap should be given a wide birth in this kind of a market situation. You have seen what has happened with some of the IPOs over the last few weeks, they get decimated after the initial excitement, I am not even sure the initial excitement factor remains out here. But I think these are things which investor should do well to avoid.