Precision Camshafts initial public offer(IPO) hit Dalal Street on Wednesday. The company is one of the world’s leading manufacturers and suppliers of passenger vehicle camshafts producing about 150 different varieties. Over the last five years, Precision Camshafts has almost doubled its market share and currently commands about 8-9 per cent of the global passenger vehicle camshaft market. It has developed long term relationship of over 10 years with global OEM’s and, is the preferred supplier with General Motors, Ford Motors, Hyundai, Maruti Suzuki and Tata Motors
The company is raising Rs 240 crore through fresh issue of equity shares in the price band of Rs 182-186. In addition, the issue also consists of offer for sale of 91.5 lakh shares of which 61.5 lakh shares will be offered by the promoter entities and 30 lakh shares by other investors. The fresh issue will constitute 13.62 per cent of the post-issue paid-up equity share capital of company assuming the issue is done at the upper price band. The IPO will close for subscription on January 29.
What experts are saying about the IPO
Reliance Securities: Given high margin, niche product, strong client relationship with respectable domain expertise, high exposure in the export markets, strong management bandwidth and inorganic growth opportunity, the business fundamentals of the company appears lucrative. “We suggest ‘Subscribe’ from a long term perspective,” said Reliance Securities in a research note.
Angel Broking: Precision Camshafts (PCL) return ratios are likely to be impacted over the next two years on account of raising of capital and low capacity utilisation of the plant initially. Further, it is exposed to currency risks and higher client concentration. On the price to earnings per share (EPS; post-IPO) front, the company is valued at 25.8x 1HFY2016 annualised numbers, while a larger and more diversified player in a similar business, Bharat Forge is trading at a similar multiple of 25.1x FY2016 estimated numbers despite better ROE. Also, another player in forgings business like Ramkrishna Forgings with a better ROE is trading at steep discount to Precision Camshafts. Further, Precision Camshaft is trading at a higher EV/Sales multiple of 3.6x as compared to 2.7x and 2.2x of Bharat Forge and Ramkrishna Forgings respectively despite competitors having diverse product profile and far bigger size as compared to PCL. Hence Angel Broking recommends Neutral on the issue given the expensive valuations.
ICICIdirect.com: The company’s business has high concentration risk (in terms of product, segments and clients) and is also commanding a rich valuation. Thus, investors can avoid the issue.
SMC Investment and Advisors: Almost 60 per cent of its revenue of the company basically comes from General motor and Ford. Total revenue includes around 78 per cent exports volume and the rest from domestic market. On the basis of financial performance, SMC marks PCL as good ongoing company. This being the first IPO under mandatory ASBA process across the board and will get listed within six working days post issue and is thus likely to test the mood of the market under the new regime of IPOs amidst volatile secondary market. On the valuation front, the stock seems to pricey. Long term investors may subscribe to the issue.
Hem Securities: The company is bringing the issue at price band of Rs 180-186 at P/E multiple of 25-26 on post issue annualised H1FY16 EPS of Rs 7.20 per share. Company being one of the leading supplier of camshafts for passenger vehicle engines in India and globally has long term relationships with marquee global OEMs with state-of-the-art manufacturing facilities. Also looking after consistent financial performance of company, issue seems to be a decent investment opportunity. Hence, the brokerage house recommended investors to “Subscribe” the issue for investment purpose.