IPO Review: Gravita India

Established in 1992, Gravita manufactures lead products through recycling and smelting processes. It currently owns nine manufacturing plants, spread globally. Apart from India, it has apresence across Africa, Asia, Central America and CIS (Commonwealth Independent States) countries.

The company aims to garner up to `45 crore via this IPO.

Nearly 40 per cent of these funds will be deployed towards setting up new facilities in Australia, Belarus, Chile and Mexico, while 30 per cent will be used to set up plants in Jaipur and Maharashtra. The balance proceeds will be invested in its overseas ventures and working capital needs. Post expansion and new ventures, the company's annual installed capacity will rise from 38,000 tonnes currently to 51,200 tonnes.

Gravita is an end-to-end solutions provider — from consultancy services to setting up plants to providing valueadded lead products. The company's global presence allows it to source raw materials at competitive freight costs. It is registered under the ministry of environment for lead processing and recycling and deploys environment-friendly technology.

While its Honduras project will be operational in the next couple of months, its projects in Maharashtra and other overseas countries are at a very nascent stage. Any delay in implementation may increase the capital cost and also affect returns from the project. Having a global presence with import and export trade, the company is also exposed to currency risks. Lastly, fluctuation in lead prices can also have a bearing on the company's profitability.

Gravita's top line has grown at a compounded rate of 96 per cent during FY06-10, while the bottom line growth stood at 84 per cent. At the upper price band of `125 and assuming a 30 per cent earnings growth, the FY11 P/E works out to 9.37 times. The valuations don't look cheap given the low entry barriers and strong presence of unorganised players in the business. Skip this one.