Riddhi Steel and Tube
I find this very interesting. The mcap is about Rs.10 crores and the capacity is 100,000 MTPA on single shift basis and 300,000 MTPA on multiple shift basis. The networth of the company is Rs.38 crores. Need opinions.
Draft red herring prospectus (DRHP) during IPO in September 2016
Shares were issued at Rs.38. Right now the stock price is Rs.12.
From the DRHP:
“We produced 31750.00MT in the financial year 2015-16 whereas we have an installed capacity of 60,000 MT per annum. The manufacturing unit is located at 83/84, Village-Kamod,Piplaj, Pirana Road, Aslali, Ahmedabad-382 427.”
In FY16, the turnover was Rs.236 crores.
Now if you see pg 31 of this DRHP, which explains ‘past production figures’
in FY11, the capacity utilization was 16775.90 MT versus capacity of 12,000
MT. This is explained with an asterisk which says ‘Working in multiple shifts’. This indicates that the capacity figures provided by the company are for single shift (traditionally 8 hours). If this is the case, the current capacity of 100,000 MTPA means a capacity of upto 300,000 MTPA on triple-
Sales in FY16 were Rs235.20 crores when capacity utlized was 31750.00 MTPA.
(53% of single shift capacity)
Sales in FY18 were Rs.270 crores. There seems to be scope to increase sales without increasing fixed assets and capital investment.
Let’s analyze their profit margins. On sales of Rs.270 crores, net profit was Rs.3.14 crores. NPM is barely 1.16%. However, if we consider the EBIDTA (Earnings before interest, depreciation, taxes and amortization) it was Rs.16.64 crores. Interest was Rs.8.53 crores while tax was Rs.1.69 crores. Cash profit was Rs.6.42 crores. The market cap currently is around Rs.10 crores.
In FY16 their net cash flow from operating activities was Rs.2.48 crores.
They bought fixed assets worth Rs.4.29 crores by borrowing funds.
In FY17, their net cash flow from operating activities was Rs.3.34 crores and they bought assets by borrowing a further Rs.58 lakhs.
In FY18, their net cash flow from operating activities was Rs.12.27 crores. They repaid loans worth Rs.6.32 crores to promoters. The company has taken lots of loan from the promoters. I do not know the terms of these loans.
Loans from banks are guaranteed with real estate in the name of promoters and their personal guarantee.
As of March 31, 2018 they had Rs.34,706,513 Capital Work in Progress. So there’s some expansion/modernization/addition happening.
Total current assets as of September 30, 2018. Rs.134 crores.
Total current liabilities as of September 30, 2018. Rs.68.35 crores.
Non current liabilities are Rs.58.34 crores.
Networth of the company is Rs.38.83 crores.
The promoter stake is 65%. The promoters have been increasing their stake with open market acquisition. They have bought 60,000 shares over the last year and a half, some purchases are at Rs.30-35 per share.
Catalog of products:
- Family run company. Promoter, his wife are on board. Promoters give loans to company. Have 69% stake.
- Small company.
- Micro cap stock and risks associated with it.
- Closely held company. Public shareholding also closely held except for 5-10% stock.
- Poor liquidity. Need to purchase minimum 3000 shares as it is an SME.
- May not have pricing power.
- ERW pipes have lower margins compared to seamless pipes.
- Whether they can scale up operations is not known.
- Working capital intensive industry. A few wrong moves or failures can become disastrous.
- Depends on infrastructure spending by government.
Members may please share their opinions. I may have missed some information.