Business of Technocraft Industries
Technocraft industries was established in the year 1972 by two brothers – MR. SK Saraf and Mr SM Saraf who were IIT Graduates and technologists.
Technocraft is mainly engaged in the business of drum closures, steel pipes, tubes and scaffoldings and cotton yarn. It is a company which is export oriented and derives most of its revenues (86% of the first half in FY 07) from exports to around 60 countries across the globe. Technocraft markets its products around the world with subsidiaries in UK, Hungary, Poland and Germany.
Technocraft clocked total revenues of Rs. 36,581.55 lakhs in 2006 which was lesser than the revenues it clocked in the preceding two years which stood at Rs.41,920 lakhs and 37,487 lakhs. The profit figure for the same period stood at Rs. 3055 lakhs, Rs.3094 lakhs and 2770 lakhs respectively.
The company is offering its share at a price band of Rs. 95 to Rs.105 which translates into a P/E multiple of 6.8 to 7.5 times earnings considering the post diluted annualized EPS for FY 2007. By far this is the most reasonably priced stock in the slew of IPOs that are slated to come in mid January.
However the reason for the lower P/E is the sluggish growth that the company has faced over recent years as also the net profit margins which have gone down from 9.3% in FY 04 to 8.4% in FY 06.
Objects of the Issue
The issue is expected to provide funds for improving the manufacturing process of Drum Closures to make it more cost effective, expand the capacity of pipe and scaffolding division and introduce new scaffolding products. Apart from this Technocraft also plans to finance the expansion of the yarn division for 25,200 spindles and set up a 15 MW power plant.
Going forward the company has got expansion plans in the drum closure market in China. China is a promising market for drum closures but is protected by high duty structure. However the demand for drum closures is quite static in other parts of the world because of alternate products being available for the same use.
On the other hand the demand for steel scaffolding and tubes is growing at quite a rapid pace but this product is quite sensitive to the prices of its key raw material which is steel and is dependent on its profitability upon the price fluctuation of steel.
Yarn manufacture is not one of the core activities of the company and in all probability it has been forced to look at this option rather than having any synergy value with the core business.
While the company has got a good solid past performance in terms of being over 25 years old it is not the kind of high growth story that an investor would expect from a relatively small player.