CRISIL revises Innoventive Industries` fair value to Rs 29
CRISIL Research has revised fair value of Innoventive Industries from Rs 92 per share to Rs 29 per share. The research firm has reduced its earnings estimates owing to lower-than-expected sales volumes and higher interest costs.
August 27, 2013 / 13:05 IST
CRISIL Research's report on Innoventive Industries
CRISIL Research has revised the fundamental grade of Innoventive Industries (Innoventive) from 3/5 to 2/5 due to continued weak demand, which has led to a sharp drop in sales volumes in Q1FY14, and a stretched balance sheet. The Q1FY14 results were below our expectations. The tube division's sales volumes declined 41 percent y-o-y and revenues declined 35 percent y-o-y. Revenues from oil and gas products declined 71 percent y-o-y. Consolidated revenues increased 3 percent y-o-y to Rs 1,904 mn due to increase in the sales of low-margin products. High capital costs and provision for debtors, forex loss and inventory write-offs impacted profits, leading to a consolidated net loss of Rs 460 mn. High inventory and elongation in debtor cycle may affect Innoventive's liquidity condition and are key monitorables.Sales volumes declined sharply; margins impacted
Sales volumes of CEW tubes, ERW tubes and membrane strips declined by 31 percent, 37 percent and 71 percent y-o-y, respectively. While sales volumes of other precision tube manufacturers have also declined, the decline is much sharper for Innoventive. Its strategy to hold on to its realisation in a competitive market has impacted volumes. Inventory build-up in the US market impacted the sale of oil and gas products. Higher sales of low-margin products in the motor vehicle parts division saw volumes increasing 25 percent y-o-y. Standalone EBITDA margin (the company does not report quarterly consolidated margin) declined to 1.6 percent owing to low capacity utilisation and provision of Rs 98 mn for bad debt and inventory write-off of Rs 30 mn.Tight monetary conditions to increase interest costs; liquidity is a monitorable
As on June 30, 2013, the company has outstanding debt of Rs 7,220 mn (Rs 6,129 mn on March 31, 2013). The Reserve Bank of India's (RBI's) measures to contain volatility in the rupee have led to higher interest rates and tight liquidity conditions. We expect these measures to increase the company's interest costs. Further, the company has to repay debt of Rs 787 mn in FY14 and we expect interest cost to be Rs 1,017 mn against the expected EBITDA of Rs 573 mn. Given the net debt to equity of 2.2x (including factoring) and the tight monetary situation, the company's liquidity condition is a monitorable.Three directors have resigned from the board; pledged shares have increased
Two nominee directors of two private equity investors and one whole-time director have resigned from the board in August 2013. The two private equity investors hold 27.5 percent of shares (as on June 30, 2013). Further, the shares pledged by the promoters for term loans taken by the company (as a percent of total promoter holding) have increased from 17.6 percent in March 31, 2013 to 23.1 percent currently.Fair value revised to Rs 29 per share
We have reduced our earnings estimates owing to lower-than-expected sales volumes and higher interest costs. Our fair value is revised from Rs 92 per share to Rs 29 per share. At the current market price of Rs 24, our valuation grade is 4/5.Disclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report. The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.CRISIL Limited . All Rights Reserved. Published under permission from CRISIL"
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