The EPS estimates in press reports include deferred income tax income (this is the second immediate time I am coming across this, after Singer), which should be ignored as advised by some forum members.
In 2010, 2011 and 2012, when this component was absent in the financials, the company had achieved net margins of 11.1%, 13.4% and 9.8%. This has further reduced to 8.7% and 7% in 2013 and 2014. However, this could be the impact of interest cost as the company took on debt in 2013. Hence I assumed net margin of 10% as the company is expected to reduce part of its debt from the IPO proceeds. Also I assumed 35% growth in revenues which is in line with past rates. Based on this basic assumptions, the EPS (pre-deferred tax income) is 1.2-1.3 giving a PE of around 36-39 for FY15 and Book Value of 15 with PB of 3.2 for price of Rs 47 per share.
The company’s deferred tax income increased from Rs 9 cr to Rs 11.7 cr from 2013 to 2014. This is a fairly large component compared to profit from operations, and I am not sure whether ignoring this is the right approach.
Although our buying and selling should generally not be based on who else is buying and selling, it is heartening to note that none of the marquee existing shareholders are offloading in the IPO.
The most attractive part is that one is getting a leading player in the sector at less than 1000 crore market cap (800 crores) with the sector dominated by unorganised players giving ample scope for the organised players to take away market share. The icing is that the sector itself is expected to grow at CAGR of 15-20% per year for next few years. Thus if execution is right, there is immense scope to grow in the backdrop of the NaMo effect (industry revival), which incidentally also would imply that the tax breaks available to the company would continue.
Discl - interested, but currently no funds available to buy/apply.