Issue Date of Jindal Cotex IPO
The offer is open between August 27th and September 1, 2009.
Price Band of the IPO
The price band of Jindal Cotex has been fixed between Rs. 70 and Rs.77.
Brickwork Ratings India Private Limited has rated the IPO – 3 out of 5, which indicates average fundamentals.
Business of Jindal Cotex
Jindal Cotex manufactures Acrylic, Polyester, Polyester â€“ Viscose, Polyester Cotton, combed and carded yarn, which are used to manufacture suitings and fabrics. They have an installed capacity of 23,472 spindles of acrylic, cotton blended and polyester yarns.
In addition to the existing business, the IPO is meant to raise money for expansion and entry into new lines of business. These new lines of businesses are medical and specialty textiles, and will be carried out through fully owned subsidiaries.
Jindal Cotex has also installed a 1250 KW Suzlon Wind Mill, and plans to sell all the power generated from this wind mill to Ajmer Vidyut Vitran Nigam (AVVN). AVVN is a power distributor that supplies power to 11 districts in Rajasthan. So, Jindal Cotex seems to be testing waters in the power generation business as well.
Risks facing Jindal Cotex
Jindal Cotex, its directors and group companies face various court cases against them, which if decided against them will have adverse impact on the business.
The top 3 customers of the company contributed about 52% of sales for the year ended March 31st 2009. This means that the company depends on a few big customers for the majority of its revenues. The same is the case for suppliers also, because the company depends on 3 suppliers to supply 52% of their purchases.
The company had taken a short term loan of Rs.500 lacs from Punjab and Sind Bank, which was due for repayment on May 14, 2009. Jindal Cotex requested the bank to roll over the loan, and it is now due on November 14, 2009.
This is an interesting risk factor that I havenâ€™t seen in many prospectuses. The P/E multiple of the IPO ranges between 21.68 and 20.23 based on the issue price. This is twice the industry average of 9.1, and this means that if you go just by the P/E multiple; the issue is priced high.
This IPO is being carried out to expand into yarn dyeing and garment manufacturing. This is a new area for the company, and while it accrues the benefits of forward integration, Jindal Cotex doesnâ€™t have any prior experience in this area.
Jindal Cotex Financials
Jindal Cotex had total income of Rs.13,825.52 lacs for the year ended 31.03.09 and a net profit of Rs. 433.80 lacs in the same period. This was up from an income of Rs. 9,958.72 lacs and net profit of Rs. 423.78 lacs, the year earlier.
The EPS for 2009 is 3.46 and was Rs.5.92 the year before.
Objectives of the IPO
The company plans to raise money from the IPO for the following things:
It will set up a new facility to manufacture cotton yarn with the capacity of 28,800 spindles in Ludhiana. This will be phase 1 of the project. In phase 2 of the project, the cotton yarn facility will be expanded by 21,600 spindles. A new yarn dyeing facility will be set up with the capacity of 6 TPD, and a garment unit will be set up with the capacity of 3,000 pieces per day.
Along with the expansion, the company is also venturing out in new areas by creating wholly owned subsidiaries. It is setting up two subsidiaries â€“ Jindal Medicot Limited and Jindal Specialty Textiles Limited.
Jindal Medicot will manufacture medical textile products like absorbent bleached cotton wool and cotton crepe bandage. Â The capacity of this plant will be 5,000 TPA.
Jindal Specialty Textiles Limited is going to set up facilities to manufacture PVC laminated products for boats, trucks, tarpaulin etc.
Disclaimer: This is just a summary of the Jindal Cotex IPO based on the prospectus it filed with SEBI. It is not a buy or sell recommendation on the IPO.