IPO Update : Decolight Ceramics

Costruction sector to dictate trend for Ceramic Industry

Decolight Ceramics is enterung the capital markets with a public issue of 80.45 lac shares of Rs. 10 each at a price band of Rs. 45-54 per share. Investment Guru is of the view that this is an addition to a list of issues which are aggresively priced on the basis of their financial performance and overall standing in the industry segment in which these companies operate and also on the benchmark of the current market price of the listed competitors. The recently concluded IPO's have shown good response despite being aggresively priced and no wonder if Decolight also gets into this league. However Investment Guru is of the view that investors should ideally not expect too much out of these IPO's. Listing gains may come as a result of huge demand for IPO's and consequent high subscriptions, however, these factors may change with market sentiments and one needs to take a cautious approach.

Here are few highlights of the company and its IPO

The company manufactures Vitrified Ceramic tiles marketed under the brand name ‘Granolite'.

Ceramic tiles as a product segment has grown to 3.8 million tons production per annum. The industry is riding its fortines on the boom in the housing sector, retail sector and IT & BPO sectors. The ceramic tiles sector has been clocking a robust growth of 12-15% consistently over the last few years. India is the 7th largest manufacturer of ceramic tiles.

The ceramic tiles sector faces the threat of a slow-down due to the massive dumping of cheap vitrified tiles by Chinese manufacturers. During 2003-04, Chinese tiles worth Rs 1,0000 lakh were dumped in the Indian market. This year, it is expected that dumping may well cross the Rs 30000 lakh mark. This will undoubtedly put a lot of strain on the local market, and in a long run, may even throw some of the players out of business. The existing and emergence of so many players will result in intense competition and downward pressure on Prices.

The company is promoted by Pethapara family and the promoters have over 10 years of industry experience.

The company has current production capacity of 12000 sq. meters of vitrified tiles per day.

Decolight plans to engage in the production of Aluminum Composite Panels (ACP), used primarily for outer covering of commercial buildings. ACP offers better resistance to heat and water and is also used in the inner surface and walls of any types of Buildings. However, the company lacks expertise in this segment and hence it would be a high risk venture.

It also plan to setup 4.6 MW Wind Turbine Generators to reduce costs incurred on electricity.

Net Income for the year ended 31st March 2007 stood at Rs. 54.3 crores against 41.2 crores in previous year, a growth of 31.7 percent. Net Profit for period ended 31st March,2007 stood at 5.55 Crores against 3.27 crores in previous year, a growth of 69.7%.

The company does not have any registered Trademark. It has applied for registeration of Trade mark under name "Granolite".

The company does not have long term contracts with its customers. The percentage of contribution of customers of last financial year 2005-06 is 49.15 % of the total sales for the year 2006-07

The weighted average EPS for last three years comes to 4.35. For the year ended 31st March 2007 the EPS stood at Rs. 5.55. At weighted average EPS the IPO is priced at a PE of 12.4. At the EPS of 2006-07 the issue comes at a PE of 9.8

Net Asset value stood at Rs. 21.37 as of 31st March 2007

The listed competitors like Kajaria which has good brand name is qouting at PE of 11.3 while Nitco Tiles is listed at a PE of 14. Lesser known players like Murudesh is qouting at PE of 5 while Orient ceramics is quoting at 7.7

Issue Opens :24-05-2007
Issue Closes :29-05-2007
Registrar : Bigshare Services