Precision Camshafts is entering the primary market on Wednesday Jan. 27, 2016, to raise Rs 2.40 billion, via a fresh issue of equity shares of Rs. 10 each and an offer for sale of up to 91.5 lakh equity shares, by promoters and directors, both in the price band of Rs 180 to Rs 186 a share. The total fund raising aggregates to Rs 4.10 billion, at the upper end of the price band, of which, offer for sale portion is Rs 1.70 billion. Representing 23.28% and 23.62% of the post issue paid-up capital, at the upper and lower end respectively, the issue will close on Friday Jan. 29, 2016.
Precision makes camshafts, mainly for passenger vehicles, as also, for tractors, light commercial vehicles and locomotive engines, having 2 manufacturing facilities in Solapur, Maharashtra, with aggregate annual capacity (30-9-15) of 13.38 million camshaft castings from foundries and 2.22 million machined camshafts from machine shops. Exports are significant (78% of FY15 revenues), while 2 customers alone, Ford and General Motors, made up for 71% of FY15 revenues, indicating huge customer concentration, a risk factor which has haunted a couple of auto component players lately.
Commenting on the IPO, SP Tulsian, independent analyst, said, ''Such unusual structuring to facilitate PE exit does not bode well, in terms of corporate governance, which may not be illegal on the face of it, but may not get pardoned by the market, as well. In essence, a group company, in which promoters own 100% equity (just Rs. 50 lakh), while preference share capital (of Rs 620 million) subscribed to by the company, is used as a structuring vehicle. Company has essentially used its own funds to buy shares from the PE investor and, in spirit, is holding its own equity!
To conclude, corporate governance seems to be an issue with this company, coupled with valuations being extremely expensive. In addition, auto industry, and auto components sector in particular, is not currently in 'flavor so as to get away with premium valuations. To top it all, current secondary market conditions are definitely not conducive, which are giving many players in auto ancillary segments at much cheaper valuations in the secondary market. Thus, nothing in the issue seems to be going in its favour, making it a clear avoid.''
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