Monday, 14 January, 2008

Porwal Auto Components - Listing Strategy

Issue Price: Rs. 75

Company Background
PACL was incorporated in the year 1992 and has started commercial production in the year 1995. It is engaged in the manufacture of S.G. (Ductile) Iron and Grey Cast Iron Castings and components primarily for the automobile sector. The company was started with an initial capacity of 3600 MT per annum and presently has an installed capacity of 9000 MT per annum as on June 2007.

At present, almost 55% of Company’s outputs are SG Iron Castings and 45% Grey Iron castings which are more versatile and particularly suitable to automotive parts.

theIPOguru has said…

On the flip side, the company is highly dependent on a single customer for 90 per cent of its revenues. The financials of the company too has been substandard even after robust growth in the automobile and its related industries. With auto component companies expanding its capacities rapidly, any overcapacity which seems likely could lead to unhealthy competition and again put pressure on the company’s margins.

Listing strategy

EXITAt a P/E of close to 75x (discounting the expected FY08 numbers), the issue price does not justify its valuation. Discerning investors could be better off exiting the stock upon listing.