Shankara Building Products IPO opens on March 22,2016 and at upper end of price band of Rs. 440-460 per share, the overall size of the offering is about Rs 345 crore. Shankara Building Products Ltd. is an Bangalore based organized retailer of home improvement and building products and is backed by Fairwinds Private Equity, which along with promoters are selling a part of their stake in the Shankara Building Products IPO.
Shankara Building Products IPO: Issue Details
| Issue Period | March 22, 2017 to March 24, 2017 |
| Date for Anchor Investors | March 21, 2017 |
| Price Band | Rs.440 – 460 |
| Minimum Bid Lot | 32 Equity Shares |
| Issue Size | Rs. 345 Crores |
| Issue size (in Shares) | Fresh Issue of Rs.45 Crore + Offer for sale of 6,521,740 Shares |
| Issue Structure : | |
| QIB | 50% of the Offer ; Rs.172.50 Cr |
| NIB | 15% of the Offer ; Rs.51.75 Cr |
| Retail | 35% of the Offer ;Rs.120.75 Cr |
| Lead Managers | IDFC Bank, Equirus Capital, HDFC Bank |
| Registrar | Karvy Computershare Pvt. Ltd. |
About Shankara Building Products Ltd. :
Incorporated in 1995, Shankara Building Products Ltd is a retailer of home improvement and building products in India. It offers a wide range of products at its stores which includes structural steel, cement, TMT bars, hollow blocks, pipes and tubes, roofing solutions, welding accessories, primers, solar heaters, plumbing, tiles, sanitary ware, water tanks, plywood, kitchen sinks, lighting and other allied products.
It also sells products under its own brands such as CenturyRoof, Ganga and Loha, apart from third party brands such as Sintex, Uttam Galva, Futura, APL Apollo and Alstone.
As of December 2016, the company had 103 retail stores in nine states and one union territory. It earns almost 40% of its revenue from its retail business.
he company enjoys strong parentage from experienced and qualified management. Sukumar Srinivas, MD of the company; is Alumnus of IIMA with 33 years’ experience in building product industry, and has also been associated as President of Karnataka Pipes Dealer’s Association. His vast experience and position has helped the company spread its network in the southern region.
he company enjoys strong parentage from experienced and qualified management. Sukumar Srinivas, MD of the company; is Alumnus of IIMA with 33 years’ experience in building product industry, and has also been associated as President of Karnataka Pipes Dealer’s Association. His vast experience and position has helped the company spread its network in the southern region.
Shankara Building Products IPO – Objectives of Issue:
Shankara Building plans to use Rs38 crore to retire debt and the rest for general corporate purposes.
Shankara Building Products: Financials:
| Particulars | 9M FY17 | 2016 | 2015 | 2014 | 2013 |
| Revenue from Operations | 1,823.51 | 2,161.46 | 2,089.24 | 2,005.51 | 1,828.60 |
| Revenue Growth (%) | – | 3.46% | 4.17% | 9.67% | – |
| EBITDA | 108.93 | 120.41 | 90.37 | 89.42 | 87.27 |
| EBITDA Margin (%) | 5.97% | 5.57% | 4.33% | 4.46% | 4.77% |
| Profit Before Tax | 62.97 | 64.93 | 34.54 | 42.01 | 47.76 |
| Net Profit as restated | 41.55 | 41.33 | 22.58 | 28.71 | 31.82 |
| Net Profit Margin | 2.28% | 1.91% | 1.08% | 1.43% | 1.74% |
| Share Capital | 21.87 | 21.87 | 21.87 | 21.87 | 21.17 |
| Reserves | 310.28 | 268.73 | 231.36 | 211.45 | 178.69 |
| Net worth | 332.15 | 290.6 | 253.23 | 233.32 | 199.86 |
| Long Term Borrowings | 7.66 | 5.26 | 6.56 | 5.8 | 11.58 |
| Short Term Borrowings | 263.29 | 208.27 | 278.84 | 273.62 | 259.91 |
| Face Value | 10 | 10 | 10 | 10 | 10 |
| RoNW (%) | 12.51^ | 14.22% | 8.92% | 12.30% | 15.92% |
| NAV Per Equity share (Rs.) | 151.87 | 132.87 | 115.78 | 106.68 | 94.41 |
| EPS ( Annualized) | 25.33 | 18.90 | 10.32 | 13.13 | 15.03 |
| IPO price | 460 | ||||
| PE (Pre Issue Equity) | 18.16 | ||||
| Cagr sales 1 yr | 3.46% | ||||
| Cagr sales 3 yr | 5.73% | ||||
| Cagr PAT 1 yr | 83.04% | ||||
| Cagr PAT 3 yr | 9.11% | ||||
| Fresh equity | 0.9783 | ||||
| Post issue equity | 22.8483 | ||||
| EPS (Post Issue Eq) | 24.25 | 18.09 | |||
| PE ( Post Issue Eq -ann) | 18.97 | 25.43 | |||
| P/BV | 0.31 | ||||
| Market Cap | 1051.02 | ||||
| Market Cap/Sales Ratio | 0.49 |
Assessment of Shankara Building Products IPO
- Shankara Building Products is a play on retail in Building materials. Shankara is among the bigger organized retailers of home improvement and building products in India.
The market for building products is worth around Rs1.8 trillion and is expected to grow at an compound annual growth rate (CAGR) of around 7% in the coming years. Healthy growth rate in Market size is expected on the back of government initiatives such as the real estate sector regulations, Afforable Housing and smart city initiatives.
- One of the lead manager, IDBI was associated with only one IPO in last one year i.e. “HPL Electric & Power Limited” which has been the biggest loser in IPO category in the previous year.
- Company is mainly focused on market in South India and intends to continue its focus on the same.
- IPO Proceeds from fresh issue of equity is planned to be mainly used for debt reduction which will add to bottom line.The company also has experienced management team with strong track record and financial stability. Promoted by first generation entrepreneur Srinivas, an alumnus of Indian Institute of Management, Ahmedabad.
- Shankara Building Products has strong vendor network with the relationship of over two decades and a presence across the entire value chain with robust back-end infrastructure ensuring efficient supply chain management. To cater to its customers, Shankara Building Products has set up a robust logistics network consisting of 56 warehouses and a fleet of 44 owned trucks to augment last mile delivery. A large portion of this warehousing backbone is owned by the company which ensures stability of operations
- The company appears to have focus on increasing its retail sales, which was at 24% in FY 2014 and reached 42% as on December 2016. Further it aims to take this figure to 60% in next 2-3 years time period.
- With Higher margins in Retails than institutional sales, Company’s Operating margins whoch are showing some improvement are expected to improve further.
- In contrast to warehouses, the company leases most of the properties occupied by its retail outlets. This put pressure of paying lease rentals & dents profitability but is an asset light model.
- At the upper Price band Shankara Building Products IPO is coming at a PE ratio of 19 on its Post IPO equity. (annualized).
- Grey Market premium of Shankara Building Products as on 18/03/17 was reported to be Rs. 110+ .
- Keeping all factors in mind, at this point of time, I am inclined to subscribe to Shankara Building Products IPO
Standard disclaimer: I am not a SEBI registered analyst. I may have vested interest in every stock I discuss. Please do your own due diligence as stock market investments have high degree of inherent risk.