Review By Dilip Davda on December 21, 2018
• ACL primarily deals in cotton bales and seeds. Capacity utilization is very low.
• Sudden spurt in earnings for last 15 months raises concern.
• Issue pricing is very aggressive if compared on the basis of financial data.
• Currently textile segment is not fancied by investors.
ABOUT COMPANY:
Axita Cotton Ltd. (ACL) is producing cotton bales and cotton seeds. The company is producing mainly two varieties of cotton bales namely Shankar-6 and MCU-5/MECH. The production facility is situated at Kadi in Mahesana District of Gujarat state which is close to the rich cotton growing areas of Maharashtra, Saurashtra and other regions of Gujarat. Its products are sold majorly in the state of Gujarat, Rajasthan, Maharashtra and Madhya Pradesh. ACL is also engaged in the business of trading of Kapas, cotton bales and cotton seeds. It is also doing ginning and pressing of Kapas on job work basis.
ISSUE DETAILS/CAPITAL HISTORY:
To part finance working capital and general corpus fund needs, ACL is coming out with a maiden IPO of 1752000 equity shares of Rs. 10 each at a fixed of Rs. 60 per share to mobilize Rs. 10.51 cr. The issue opens for subscription on 27.12.18 and will close on 02.01.19. Minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. Issue constitutes 26.74% of the post issue paid up capital of the company.
The issue is solely lead managed by Beeline Broking Ltd. while Link Intime India Pvt. Ltd. is the registrar to the issue. Having raised initial equity at par, it raised further equity at a price of Rs. 15 per share in September 2018. Average cost of acquisition of shares by the promoters is Rs. 6.94, Rs. 11.94 and Rs. 12.62 per share. Post issue, ACL's current paid up equity capital of Rs.4.80 cr. will stand enhanced to Rs. 6.55 cr.
FINANCIAL PERFORMANCE:
On the performance front, for the last four fiscals, ACL has posted turnover/net profits of Rs. 77.05 cr. / Rs. (-0.29) cr. (FY15), Rs. 68.76 cr. / Rs. 0.12 cr. (FY16), Rs. 91.52 cr. / Rs. 0.03 cr. (FY17) and Rs. 123.92 cr. / Rs. 0.82 cr. (FY18). Sudden jump in FY top and bottom lines are bit surprising. For Q1 of FY19 it has earned net profit of Rs. 0.33 cr. on a turnover of Rs. 21.22 cr. Thus higher profit for Q1 is also raising concern. Company's current debt/equity ratio is very high at 4.75. Capacity utilization is very poor. According to offer documents, boost in revenues are due to transactions with group companies.
For last three fiscals, it has posted an average EPS of Rs. 1.76 and an average RoNW of 14.27%. Issue is priced at a P/BV of 4.28 on the basis of its NAV of Rs. 14.01 as on 30.06.18 and at a P/BV of 2.25 on the basis of post issue NAV of Rs. 26.65.
If we annualize latest earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 30 making it a costly bet.
COMPARE WITH LISTED PEER:
As per offer document, it is considering Pashupati Cotspin and Santaram Spin as its listed peers that are currently trading at a P/Es of around NA and 28 (as on 21.12.2018). However, peers are not strictly comparable on the basis of business model.
MERCHANT BANKER'S TRACK RECORD.
On merchant banker's front, this is the 3rd mandate from its stable in last three fiscals. Last two listings opened at a premium ranging from 4.5% to 10% on the day of listings.
Financial performance is average, issue pricing is very aggressive. Currently textile segment is not fancied by investors. Considering all these, there is no harm in giving this issue a miss.
Review By Dilip Davda on December 21, 2018
Dilip Davda is a veteran financial journalist associated with the Indian stock market since 1978. He has been contributing to print and electronic media on capital markets, insurance, and finance since 1985.
He is widely recognized for reviewing public issues and non-convertible debentures (NCDs) in the primary market. Drawing on over three decades of market experience and close interaction with merchant bankers, his reviews focus on detailed fundamental and financial analysis of companies, with a special emphasis on SME public issues.
Dilip Davda
SEBI Registered Research Analyst – Mumbai
Registration No.: INH000003127 (Perpetual)
Email: dilip_davda@rediffmail.com
Disclaimer: The information provided herein is solely for educational and informational purposes and does not constitute an offer, solicitation, or recommendation to buy or sell any securities. Readers are advised to consult a qualified financial advisor before making any investment decisions. Investments in the securities market are subject to market risks. The author does not intend to invest in the securities discussed.
The initial public offer (IPO) of Axita Cotton Ltd. offers an early investment opportunity in Axita Cotton Ltd.. A stock market investor can buy Axita Cotton IPO shares by applying in IPO before Axita Cotton Ltd. shares get listed at the stock exchanges. An investor could invest in Axita Cotton IPO for short term listing gain or a long term.
Read the Axita Cotton IPO recommendations by the leading analyst and leading stock brokers.
Axita Cotton IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the Axita Cotton IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts mentioned in the above answer to "How is Axita Cotton IPO?"
Our recommendation for Axita Cotton IPO is to avoid.
As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to avoid the Axita Cotton IPO.
The Axita Cotton IPO allotment status will be available on or around January 7, 2019. The allotted shares will be credited in demat account by January 9, 2019. Visit Axita Cotton IPO allotment status to check.
