Business of Rathi Bars Limited
Rathi Bars Limited, a member of the famous Rathi group, is presently involved in manufacturing steel bars. Steel bars are used in construction of huge structures such as Dams, Multi storied building, Bridges, Flyovers as a basic reinforcement material. There a variety of steel bars. Rathi Bars manufactures Cold Twisted Deformed (CTD) and Thermo mechanically Treated (TMT) bars. These two varieties fall in the Long products group of the steel bar industry. Ms-Ingot is the main raw material.
The company is promoted by the Rathi family. The key promoters are Kamlesh Kumar Rathi, Anurag Rathi, Anupam Rathi and other Rathi family members.
Particulars of the Issue
The issue is for 71,42,857 equity shares of Rs.10 each for cash at a price of Rs.35 per share aggregating to Rs.25 crores. The issue will constitute about 44% of fully diluted post paid up equity capital.
Basis for Issue price
Company claims that it is a manufacturer with high demand in Northern India. Plus, it has superior technology and quality certifications. “Rathi” is a well established brand in the market. Earning Per Share (EPS) for FY 2005-06 was Rs.10.90. Eight months EPS for the current financial year is Rs.6.83. Industry average P/E multiple is 8.60. As per the company’s prospectus, Kamdhenu Ispat Limited, Rajpur Alloys Limited, Vardhaman Industries Ltd and Zenith Birla (all having P/E above 10) are its peer companies.
Objects of the Issue
Company’s products are popular in Northern states like Haryana, Rajasthan and HP. Primary motive of this issue is to fund its expansion products. Company also intends to start production and sale of steel billets. Out of the total issue proceeds, Rathi Bars Ltd. intends to spend about Rs.20 crore on plants and machinery. About Rs.11 crore will be for working capital. The issue expenses are Rs.2 crore.
Following are the key risks which can impact company’s performance:
a. There are 2 excise related and 16 sales tax (amounting to about Rs.9 crore) and one Service tax related cases pending against the company.
b. Objective of the issue has not been appraised by any independent agency.
c. Surprisingly, there are other companies in the Rathi group who are in the same line of business as Rathi Bars Ltd. Hence, there is competition within the group.
d. Certain statutory approvals are yet to be received.
e. Company has non-exclusive rights to use the brand name “Rathi”.
f. Steel industry is cyclical in nature.
g. Chinese steel industry is a big potential threat.
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