NOT A STE(A)L FOR INVESTORS
MAX. ISSUE SIZE (Rs) : 39.4 crore
PRICE BAND (Rs) : 60 (Fixed)
ISSUE OPENS/CLOSES : 25th to 31st October, 2007
LISTING : BSE, NSE.
Varun Industries is an exporter of stainless steel utensils. Its markets include the Middle East, North America, Europe and Australia. Foreseeing growth in demand in India, the company has set up a stainless steel sheet re-rolling mill at Jodhpur.
This will provide a raw material feed of around 60 per cent for its production plant at Thane in Maharashtra, which commenced production recently. IPO proceeds have been earmarked to develop a sales and distribution network alongside brand building in the domestic market.
While these objectives can be debated, the plan to diversify into unrelated businesses like oil and gas and mining ore is inexplicable. Notwithstanding the perceived potential, the steel utensils business is a highly fragmented one dominated by a plethora of small players.
The presence of promoter group companies engaged in similar lines of business too hardly inspires. Similarly, given that the company earns primarily through exports, the sharp appreciation of the Indian Rupee is bound to dent its financials and prospects.
While its topline of Rs.740 crore passes muster, the lower than industry average EBIDTA margin of 6 per cent does not inspire. While the forward P/E of around 8 is lower than some of its listed peers and could provide a listing pop in a frenzied market , chances are discerning long-term investors wont queue up for this issue.
