Pennar & Shree Pushkar IPOs

Pennar Engineered Building Systems Limited IPO Today, 25th August, 2015
Shree Pushkar Chemical & Fertilisers Limited IPO Today, 25th August, 2015

Pennar Engineered Building Systems

High Growth, Good Cash Flow And Better Return Ratios PEBSL (Pennar Engineered Building Systems), incorporated in FY08, is the second-largest player in a short span in the fast-growing 13-year-old PEB (pre-engineered building) industry in India. With multifold advantages over conventional construction like lower costs, lower weight and faster execution by 20%-30% each, earthquake-resistant buildings, better control over quality, higher salvage value and better aesthetic appeal, the PEB industry is expected to post a 20.8% CAGR to Rs111.3bn over FY15-FY18E. With its strength like a 147-member engineering design team, much larger than sub-100 engineer team of top player Kirby, established track record in timely execution of complex projects, technical knowhow arrangement with NCI Group Inc. based in the US and a strong management team headed by Mr.P.V. Rao, ex-Kirby, with 34 years of work experience, PEBSL is in a sweet spot to capitalise on the opportunity. PEBSL increased its capacity by 3x in five years since its inception and we expect it to grow at an aggressive pace. With its focus on working capital cycle and cash flow, PEBSL has built up a strong business model operating with lean working capital requirement of 12% of FY14 sales and high fixed-asset turnover of 5.4x in FY15. At the upper band of IPO price of Rs178, PEBSL is attractively placed at 15.5x/7.6x FY17E P/E and EV/EBITDA, respectively. Likely revenue/EBITDA/PAT CAGR of 22.7%/24.4%/32.4% to Rs8,311mn/Rs901mn/Rs510mn, respectively, coupled with a decline in working capital requirement from 16.9% to 11.8% leading to a healthy operating cash flow of Rs1,319mn, debt-free status with a cash surplus of Rs918mn and a 371bps improvement in post-tax RoIC to 24.9% from 21.2% over FY15-FY18E should command a premium valuation of 22x-25x FY17E P/E. Based on 22x/11.1x FY17E P/E and EV/EBITDA, the one- year target price of PEBSL is seen at Rs252, up 42% from the upper IPO price band of Rs178. We recommend subscription to the IPO at the upper price band.