In the first half of the financial year, auto components business underwent some pressure due to weak dollar, rising input costs along with fierce competitions. On the domestic front, due to rising interest rates the demand for vehicles was sluggish. However, things are overdue for a change as interest rates are expected to move southwards.

Business

Auto components players are mulling capacity additions to capture this opportunity and Porwal Auto Components (PAC) is one such company. This Indore-based auto component manufacturer is engaged in manufacturing and selling of SG and CI castings along with some other products, which are used in commercial vehicles segment.

Financials

PAC has reported a topline GAGR of 25%, from Rs 13.86 crore in FY2002-2003 to Rs 34.63 crore in FY 2006-07. The net profit, on the other hand, has grown from Rs 0.06 crore in FY2002-03 to Rs 0.75 crore in FY2006-07, registering a CAGR of 85%. For the six months ended September 30, 2007, the company has posted revenues of Rs 16.70 crore and net profit of Rs 0.75 crore, though at a minimal provision for tax.

Objectives

PAC proposes to expand its manufacturing capacities from 6,600 mt per annum to 27,600 mt per annum to meet the growing demand in the industry. This project has already started and currently the capacity stands at 900 mt per annum. It also intends to set up one windmill of 1.5 mw power generation capacity for captive consumption. The project is expected to go on stream by July 2008.

Outlook

The company has majority of its revenues coming from Eicher and any slowdown in Eicher’s performance can mar the growth of the company. Though it has been trying to develop its relationships with other automakers such as Man Trucks, it will take time to significantly contribute to revenues. High client concentration risks along with heavy dependence on commercial vehicle segment make the business risky.

The offer is graded as 3 out 5, indicating average fundamentals. The project is part financed by State Bank of Indore to the extent of Rs 12 crore. One should note that the promoters have taken preferential allotment in January 2006 at par while bringing in their contribution in the project. The company was earlier listed on OTCEI and now seeking listing on BSE post this offer.

The stock on offer is valued at 68 to 75 times its annualised earnings for H1 FY2006-2007 on fully diluted equity capital.

This appears like a dear proposition. Risk taking investors can consider purchasing at lower levels post listing.