IPO Review: Innoventive Industries

 

The strength of Innoventive Industries lies in its ability to change product mix, if required. Its IPO move may just pay off long term

IPO details

Company Name: Innoventive Industries Limited (IIL)

Issue Date: April 26-29, 2011

Issue Size: 219.58 crore

Price Band : 117-120 per share


INNOVENTIVE Industries Limited (IIL) has evolved into a multi-product engineering company from an auto component provider. To grow its operations further, the company is approaching the capital market to raise an estimated 219.58 crore from its initial public offer. The issue opens on April 26 and closes on April 29 for retail investors and is priced between 117-120.

BUSINESS:

Innoventive Industries has six facilities in Pune and Silvassa and services clients in the transportation, farm equipment, oil and gas, and power industries. It has limited exposure to variations in demand and supply in its user industries as it does not use any special purpose machinery and can easily change its product mix if required.

   As the name suggests, the company is continuously innovating within the space it operates. With its combination of low-cost inorganic growth strategy and indigenously developed state-of-the-art technology, IIL has a significant edge over its competitors.

   In a move towards forward integration, the company has invested in an auto component manufacturer, another investment in a steel wire producer and has acquired stake in an oil well-drilling ancillary. To achieve backward integration, IIL acquired a 51% stake in Saicon Steels Private Limited, which converts hot-rolled coils into cold-rolled ones.

GROWTH DRIVERS:

With a growth rate of 16% compounded annually, the Indian precision tubes industry is expected to grow to over 7,500 crore by FY15. Given IIL's strong presence and expansion plans, it is wellplaced to capitalise on this growth.

FINANCIALS:

IIL's consolidated net sales have grown 30% in the past two years. For the nine months ended December 2010, the company's net sales were 453.16
crore, higher than its FY10 sales of 421.50 crore. Operating profit margin increased to 26% in FY10 from 17% in FY09. Despite high interest payments, its earnings have been steadily rising.

INVESTMENT RATIONALE:

At the upper price band of 120, the stock is available at a 9-month (annualised) priceearnings ratio of 9.4 times. This is significantly cheap compared with Tube Investment of India which is quoting at 143 with a 12-month price-earnings ratio of 14.

CONCERNS:

The company is very highly leveraged with a debt of 355 crore on its books as of December 2010.