Shankara Building Products IPO: should you subscribe?

Shankara Building Products Limited (SBPL) is set to make its entry on Indian markets through its initial public offering (IPO). The issue opens on March 22, 2017 and will available till March 24, 2017.

IPO

SBPL will make fresh issue of equity shares along with offer for sale (OFS) of over 0.65 crore equity shares.

The company plans to raise Rs 345 crore (including both fresh issue and OFS). Price band has been fixed at lower band of Rs 440 per piece and upper band of Rs 460 per piece.

50% of equity shares will be allotted to Qualified Institutional Buyers (QIB), 15% to non-institutional investors (NII) and remaining 35% to Retail Individual Investors (RII).

Book running lead managers (BRLM) for SBPL IPO are IDFC Bank, Equirus Capital Private Limited and HDFC Bank.

Proceeds from this IPO is expected to be utilised for repayment or pre-payment of loans and general corporate purposes, it said. 

Should you invest?

Amarjeet S Maurya, analyst, Angel Broking said, “At the upper end of the price band, the pre issue P/E multiple works out to be 18.2x of its annualized 9MFY17 numbers. On EV/Sales, the issue is valued at 0.6x of annualized 9MFY17 numbers. Considering its long term prospects and reasonable valuation, we recommend Subscribe rating on this issue.”

Dewang Sanghavi and Akshay Kadam analysts from ICICI Securities said, “Going forward, the company plans to further increase its focus on retail segment, auguring well. On a consolidated basis,  We recommend that investors SUBSCRIBE to the issue.”

On the other hand Mrinalini Chetty and Siddhartha Khemka of Centrum Broking maintained a neutral outlook on the IPO. 

The duo said, "Further 87% of the issue is offer for sale and the issue proceeds will not come into the company. However, SBPL is currently amidst a business mix change (with focus on retail) which could result in improvement in financials over the next few years. Hence we are Neutral on the IPO."

Key points to note 

In last five years, SBPL has witnessed a healthy top-line (revenue) of 9.5% compound annual growth rate (CAGR) and bottom-line (Profit after tax) of 8.4% CAGR. 

Furthermore, SBPL's debt/equity ratio has improved to 0.8 in 9MFY17 from 1.3 in FY2012. The company's working capital cycle has improved from 71 days in FY2012 to 42 days in 9MFY2017.

Centrum believes  building materials market in India is expected to improve owing to the increase in government investments, implementation of GST and rapid urbanisation. Thus SBPL being one of the few organised retailers in this space is likely to benefit from the same.