Shankara Building Products IPO: Nirmal Bang recommend subscribing to the issue
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- Shankara Building Products Ltd
- Price Band: Rs. 440 – Rs. 460
- Issue Date: 22th – 24th March
- Recommendation: Subscribe
Promoted by Mr. Sukumar Srinivas, Shankara Building Products (SBPL) is one of the leading organized retailers of home improvement and building products based in south India. It currently operates 103 retail shops operating under the trade name of Shankara Buildpro spread across 9 states and 1 union territory in India. They cater to a large customer base across various end user segments in urban and semi urban markets through multi-channel sales approach, processing facilities, and supply chain and logistics capabilities.
a) Asset light strategy for opening retail shops
b) Backward integration with processing facilities, owned warehouses and logistics
c) Strong track record and sound financial strength
d) Presence across the value chain through enterprise and channel sales
Objects of the Issue:
The public issue of SBPL consists of fresh issue of Rs 45 cr and offer for sale of equity shares of Rs 300 cr from promoters group and private equity investor.
The object of the issue is mainly to repay the debt and for general corporate purposes
• Repayment or pre-payment of loans Rs 34cr
• General corporate purpose.
Valuation and Recommendation:
Over FY13- FY16 the revenues of SBPL have grown at a CAGR of 4.8% however, growth in the retail segment was 28% CAGR. EBIT in the retail segment has grow at 99% CAGR over 2013-2016 with EBIT margin increasing from 1% in FY13 to 6.3% in FY16 and 7.1% for the nine month ended December 2016 as compared to consolidated EBIT margin of 4.7% in FY13 to 5.5% in FY16 and 5.9% for 9 month ended December 2016. According to the management, SBPL plans to focus more on the retail segment to drive growth and stabilize the revenue growth in enterprise and channel segment. SBPL has reported healthy RoCE and RoE at 28.2% and 14.2% for FY16 despite aggressive expansion in the retail segment. We expect SBPL to report healthy numbers for FY17 and FY18. On the valuation front, at the upper end of the price band of Rs 460, as per our estimates, SBPL is offered at PE of 18x its FY17E EPS of Rs 25 and 15x its FY18 EPS of 31. We recommend subscribing to the issue.
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Founded in 1986 by Nirmal Bang, the Nirmal Bang is recognized as one of the largest retail broking houses in India, providing an array of financial products and services. Their retail and institutional clients have access to products such as equities, derivatives, commodities, currency derivatives, mutual funds, IPOs, insurance, depository services and PMS. The Group is headed by Mr. Dilip Bang and Mr. Kishore Bang.
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