Precision Camshaft IPO review (Apply)

Precision Camshafts Ltd (PCL) is one of the world‘s leading manufacturer and supplier of camshafts, a critical engine component, in the passenger vehicle segment  It supplied over 150 varieties of camshafts for passenger vehicles, tractors, light commercial vehicles and locomotive engine applications. A majority of its revenue comes from export of camshafts to various OEMs directly and indirectly. PCL has long term relationships with several marquee global OEMs, such as General Motors, Ford Motors, Hyundai, Maruti Suzuki, Tata Motors and Mahindra and Mahindra. It has supplied over 50 million units of camshafts in the last ten fiscals and has serviced various customers across different geographies including the United States of America, Brazil, the United Kingdom, Germany, Austria, Hungary, Russia, South Korea, China and India. Despite a relatively slower period of growth in the automobile industry in the last five years, PCL was able to consistently increase global market share in passenger vehicle camshafts market. Solapur that was known as textile hub of India is not on global map with camshafts from PCL.

PCL currently has two state-of-the-art manufacturing facilities – an EOU unit and a domestic unit – both situated at Solapur, Maharashtra. The EOU unit consists of four foundries and two machine shops and products manufactured at the EOU unit are primarily exported to overseas customers. The domestic unit consists of one foundry and one machine shop that cater to domestic customers. PCL's total manufacturing capacity as on December 31, 2014 was 13.38 million camshaft castings and 2.22 million machined camshafts per annum.  As the growth of the passenger vehicle production estimated to grow at a CAGR of 9% to 10% by fiscal 2020, company hopes to raise its market share. The company proposes to set up two new machine shops at Solapur, Maharashtra specifically for ductile iron camshafts and assembled camshafts, respectively, by fiscal 2017 and fiscal 2018 and also foray into manufacturing and supply of sliding cams and cam modules under its planned expansion strategy. PCL has entered into two joint ventures with NSPCL, the first, Ningbo Shenglong PCL Camshafts Company Limited, for machining of camshafts and the second, PCL Shenglong (Huzhou) Specialised Casting Company Limited, for setting up a foundry in China to strengthen its Asian operations.

To part finance its proposed expansion and raise general corpus funds, the company is coming out with its maiden IPO that consists of issuance of fresh equity as well as Offer for Sale. While offer for sale will be 9150000 equity shares, the rest will be fresh issue for Rs. 240 crore (approx 1.30 crore shares) making aggregate size of the issue of Rs. 405 to 410 cr based on lower and upper price band. Equity shares having a face value of Rs. 10 each is being issued in the price band of Rs. 180-186. Minimum application is to be made for 80 shares and in multiples thereon, thereafter. Issue opens for subscription on 27.01.16 and will close on 29.01.16. BRLMs to the issue are SBI Capital Markets Ltd, HDFC Bank Ltd and India Infoline Ltd. Link Intime India Pvt Ltd is the registrar to the issue. Post issue, shares will be listed on BSE/NSE. Post IPO its current equity capital of Rs. 81.84 cr. will stand enhanced to around Rs. 95 cr.

On the performance front, company's turnover the net profit were Rs. 311.24 cr./Rs. 20.34 cr. (FY 12), Rs. 367.54 cr. /Rs. 23.92 cr. (FY 13), Rs. 479.91 cr./Rs. 13.12 cr (FY 14) and Rs. 542.75 cr./Rs. 62.36 cr (FY 15). For first six months ended on 30.09.15 it has earned net profit of Rs. 34.10 cr. on a turnover of Rs. 263.56 cr. If this is annualized and attributed to enhanced equity post IPO then asking price is at a P/E of around 26. This IPO again is from the first mover of the segment having virtual monopoly with no peers to compare with is expected to generate fancy. Total revenue includes around 78% exports volume and the rest from domestic market. PCL has created niche place in global market with around 10% market share and has long term assignments from world renowned auto giants.
 
On merchant banker's front, they have mixed trends for previous mandates post listing.

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.