Shankara Building's IPO opens: Should you subscribe?

Shankara Building Products will be the new entrant on the initial public offering (IPO) street on Wednesday. The retailer of home improvement and building products is set to open an issue of Rs 350 crore, with an issue price of Rs 440-460, on March 22 and will close on March 24. The issue will constitute at least 25 percent of the post offer paid-up equity share capital of the company.

"The issue comprises of a fresh issue of equity shares aggregating up to Rs 45 crore and an offer for sale of up to 8,16,252 shares by promoter Sukumar Srinivas and up to 57,05,488 shares by Fairwinds Trustees Services (acting in the capacity of trustee of Reliance Alternative Investments Fund – Private Equity Scheme I)," the company said in its press release.

The company sells products at its various stores that operate under the trade name Shankara BuildPro. Its products include structural steel, cement, thermo mechanical treatment bars, hollow blocks, pipes and tubes, roofing solutions, welding accessories, primers, solar heaters, plumbing products, tiles, sanitary ware, water tanks, plywood, kitchen sinks, and lighting and other allied products

It operated 103 stores spread across 9 states and 1 union territory in India. It also provides customised solutions to enterprise customers through bespoke steel products, which is backward integrated through its own processing facilities in select building
products.

Analysts are positive on the issue and recommend subscribing to it with a long term perspective.

Angel Broking recommends subscribing to the issue on the back of long term prospects and its valuations.

“Considering the company’s strong retail presence, diversified product offering, substantial same store sales growth and robust retail revenue of 29 percent over FY2012-16, we expect the company to witness higher revenues from its retail business going ahead,” the brokerage house said in a report.

It places its bet on the firm’s plan to expand footprint in retail business. The company has increased its store count from 43 to 103 in the nine months that ended in FY2017. It also cites the instance of the company putting efforts to increase retail sales. Based on this, it also expects margin expansion as well.

Anand Rathi has a subscribe recommendation on the stock on a long term asis. It cites the IPO's pricing at 19X FY17 earnings at upper price band of Rs 460.

Among its business strategies, it cites scaling up of retail presence, enhancing of product offerings and focus on brand equity and marketability in home improvement and building space.

Religare, meanwhile, has highlighted the company’s commentary on its strengths. It offers a comprehensive range of home improvement and building products and has a strong vendor network and relationship over two decades.

Among risks, it cites uncertainty in housing market, real estate prices and other factors to be a challenge. Along with them, disruptions in logistics or supply chain network and increase in lease rentals where it plans to set up stores as risks.