IPO Note | Building Materials
March 18, 2017
Shankara Building Products Limited
SUBSCRIBE
sue Open: March 22, 2017
Is
Thrust on retail to boost potential
Issue Close: March 24, 2017
Shankara Building Products Ltd (SBPL) is one of the leading organized retailers of
home improvement and building products in India. Shankara offers a
Issue Details
comprehensive range of products including cement, structural steel, TMT bars,
Face Value: `10
hollow blocks, pipes & tubes, roofing solutions, tiles, sanitary ware, water tanks,
plywood, kitchen sinks, lighting and other allied products.
Present Eq. Paid up Capital: `21.9cr
Expanding its footprint in the retail business: SBPL has increased its store count
from 43 in FY2012 to 103 in 9MFY2017, with total retail business area of ~0.37mn
Offer for Sale: 0.65cr Shares
sq. ft in 9 states and 1 Union Territory. Moreover, the company has plans to increase
Fresh issue: `45cr
the store count by 15-20 every year going ahead, which will further boost its growth.
Efforts to shift revenue mix from institutional sales to retail business: Currently, the
Post Eq. Paid up Capital: `22.8cr
company’s 40% revenue comes from retail business and the balance from
institutional sales (channel sales and Enterprise segments). Historically, SBPL has
Issue size (amount): *`331cr -**345cr
increased its retail revenue from 24% in FY2014 to 42% in 9MFY2017. The
company is continuously putting efforts to increase the retail sales, which is
Price Band: `440-460
expected to reach up to 60% in the next 2-3 years on the back of rise in strong
Lot Size: 32 shares and in multiple
customer relationships, opening of new stores, focus on brand equity and
thereafter
marketability in the home improvement and building space, etc.
Post-issue implied mkt. cap: *`1,005cr -
Operating margins improve significantly: The Company’s operating margin has
**`1,051cr
increased from 4.6% in FY2014 to 6.4% in 9MFY2017 due to a change in
Promoters holding Pre-Issue: 62.4%
revenue mix towards retail business, which is a higher margin business (margin
of 9-10%) compared to institutional business like channel sales and Enterprise
Promoters holding Post-Issue: 56.2%
segments, which has low margins (around ~5%). Going forward, we expect
*Calculated on lower price band
margins to improve on the back of higher revenue from retail sales.
** Calculated on upper price band
Strong improvement in Financials: SBPL has reported healthy top-line of 9.5%
CAGR and bottom-line of 8.4% CAGR over FY2012-16. Further, the company’s
Book Building
debt/equity ratio has improved from 1.3 in FY2012 to 0.8 in 9MFY2017 and also the
QIBs
50% of issue
working capital cycle has improved from 71 days in FY2012 to 42 days in 9MFY2017.
Outlook and Valuation: Considering the company’s strong retail presence,
Non-Institutional
15% of issue
diversified product offering, substantial same store sales growth (last five years
Retail
35% of issue
average growth is 23%) and robust retail revenue of ~29% over FY2012-16, we
expect that SBPL to witness higher revenues from its retail business going ahead.
At the upper end of the price band, the pre issue P/E multiple works out to be
Post Issue Shareholding Pattern
18.2x of its annualized 9MFY17 numbers. On EV/Sales, the issue is valued at
0.6x of annualized 9MFY17 numbers. Considering its long term prospects and
Promoters
56.2%
reasonable valuation, we recommend Subscribe rating on this issue.
Others
43.8%
Key Financials
Y/E March (` cr)
FY2014
FY2015
FY2016
9MFY17
Net Sales
1,927
1,979
2,036
1,710
% chg
9.1
2.7
2.9
-
Net Profit
29
23
41
42
% chg
(9.8)
(21.4)
83.1
-
OPM (%)
4.6
4.5
5.9
6.4
EPS (`)
13.1
10.3
18.9
19.0
P/E (x)
35.0
44.6
24.3
-
P/BV (x)
4.3
4.0
3.5
-
RoE (%)
12.3
8.9
14.2
-
RoCE (%)
16.2
15.0
21.9
-
Amarjeet S Maurya
EV/Sales (x)
0.7
0.7
0.6
-
+91 22 39357800 Ext: 6831
EV/EBITDA (x)
14.5
14.4
10.2
-
[email protected]
Source: Company, Angel Research; Note: Valuation ratios based on pre-issue outstanding shares and at upper end of the price band
Please refer to important disclosures at the end of this report
1
Shankara Building Products | IPO Note
Company background
Shankara Building Products Ltd (SBPL) is one of the leading organized retailers of
home improvement and building products in India. The company offers structural
steel, cement, thermo mechanical treatment bars, hollow blocks, pipes and tubes,
roofing solutions, welding accessories, primers, solar heaters, plumbing products,
tiles, sanitary ware, water tanks, plywood, kitchen sinks, and lighting and other
allied products. As of September 24, 2016, it operated 100 Shankara BuildPro
stores, covering the end-user segments of urban and semi-urban markets in
Andhra Pradesh, Goa, Gujarat, Karnataka, Kerala, Maharashtra, Odisha, Tamil
Nadu, Telangana, and Puducherry. The company also manufactures, assembles,
processes, trades in, imports, exports, or deals in a range of steel sheets, steel
roofing sheets, walling products, accessories, and steel structures and purlins used
for construction of various types of building structures, as well as steel pipes, tubes
and pipe fittings, and iron & steel and allied products; and engages in general
hardware and general wholesale trading activities.
It serves home owners, architects and contractors, small enterprises and housing,
general engineering, automotive, renewable energy, agriculture, and construction
and infrastructure sectors. The company was formerly known as Shankara
Infrastructure Materials Limited and changed its name to Shankara Building
Products Limited in July 2006. Shankara Building Products Limited was founded in
1995 and is headquartered in Bengaluru, India.
Exhibit 1: Evaluation of the company
Source: Company, Angel Research
March 18, 2017
2
Shankara Building Products | IPO Note
Issue details
The company is raising ~`45cr through a fresh issue of equity shares. The fresh
issue will constitute ~4% of the post-issue paid-up equity share capital of the
company, assuming the issue is subscribed at the upper end of the price band. The
company is offering 0.65cr shares that are being sold by the promoter group and
other shareholders.
Exhibit 2: Pre and Post-IPO shareholding pattern
No. of shares (Pre-issue)
(%) No. of shares (Post-issue)
(%)
Promoters
1,36,58,000
62.4%
1,28,41,748
56.2%
Others
82,13,037
37.6%
1,00,07,550
43.8%
2,18,71,037
100%
2,28,49,298
100%
Source: RHP, Angel Research; Note: Calculated on upper price band
Objects of the offer
Repayment or pre-payment of loan amounting to `34cr
General corporate purpose
March 18, 2017
3
Shankara Building Products | IPO Note
Investment Rationale
Expanding its footprint in the retail business
SBPL has increased its store count from 43 in FY2012 to 103 in 9MFY2017, with
total retail business area of ~0.37mn sq. ft in 9 states and 1 Union Territory.
Moreover, the company has plans to increase the store count by 15-20 every year
going ahead, which will further boost its growth.
Exhibit 3: Strategically located retail stores
Source: Company, Angel Research
Efforts to shift revenue mix from institutional sales to retail
business
Currently, the company’s 40% revenue comes from retail business and the balance
from institutional sales (channel sales and Enterprise segments). Historically, SBPL
has increased its retail revenue from 24% in FY2014 to 42% in 9MFY2017. The
company is continuously putting efforts to increase the retail sales, which is
expected to reach up to 60% in the next 2-3 years on the back of rise in strong
customer relationships, opening of new stores, focus on brand equity and
marketability in the home improvement and building space, etc.
March 18, 2017
4
Shankara Building Products | IPO Note
Exhibit 4: Revenue mix
100%
90%
25%
28%
34%
80%
39%
70%
60%
33%
32%
50%
35%
37%
40%
30%
20%
40%
42%
31%
10%
24%
0%
FY2014
FY2015
FY2016
9MFY17
Retail sales
Enterprise sales
Channel sales
Source: Company, Angel Research
Operating margins improve significantly
The Company’s operating margin has increased from 4.6% in FY2014 to 6.4% in
9MFY2017 due to a change in revenue mix towards retail business, which is a
higher margin business (margin of 9-10%) compared to institutional business like
channel sales and Enterprise segments, which has low margins (around ~5%).
Going forward, we expect margins to improve on the back of higher revenue from
retail sales.
Exhibit 5: Operating margin improved by 177bp
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
FY2014
FY2015
FY2016
9MFY17
Source: Company, Angel Research
March 18, 2017
5
Shankara Building Products | IPO Note
Strong improvement in Financials
SBPL has reported healthy top-line of 9.5% CAGR and bottom-line of 8.4% CAGR
over FY2012-16. Further, the company’s debt/equity ratio has improved from 1.3
in FY2012 to 0.8 in 9MFY2017 and also the working capital cycle has improved
from 71 days in FY2012 to 42 days in 9MFY2017.
Exhibit 6: Historical revenue trend
Exhibit 7: Historical PAT trend
2,100
45
41
2,036
2,050
40
1,979
2,000
35
32
1,950
1,927
29
30
1,900
25
23
1,850
20
1,800
1,767
15
1,750
10
1,700
1,650
5
1,600
0
FY2013
FY2014
FY2015
FY2016
FY2013
FY2014
FY2015
FY2016
Source: Company, Angel Research
Source: Company, Angel Research
March 18, 2017
6
Shankara Building Products | IPO Note
Outlook and Valuation
Considering the company’s strong retail presence, diversified product offering,
substantial same store sales growth (last five years average growth is 23%) and
robust retail revenue of ~29% over FY2012-16, we expect that SBPL to witness
higher revenues from its retail business going ahead. At the upper end of the price
band, the pre issue P/E multiple works out to be 18.2x of its annualized 9MFY17
numbers. On EV/Sales, the issue is valued at 0.6x of annualized 9MFY17
numbers. Considering its long term prospects and reasonable valuation, we
recommend Subscribe rating on this issue.
Key risks
Increase in competition
Due to low entry barriers in business, the company could face increased
competition, which would impact the company’s profitability.
Slowdown in real estate
Slowdown in the real estate activities could adversely impact the overall business
performance.
Geographical concentration
The company’s ~52% revenue comes from the state of Karnataka, any change in
this could impact the company’s revenue.
March 18, 2017
7
Shankara Building Products | IPO Note
Income Statement
Y/E March (` cr)
FY2013
FY2014
FY2015
FY2016
9MFY17
Total operating income
1,767
1,927
1,979
2,036
1,710
% chg
25.0
9.1
2.7
2.9
-
Total Expenditure
1,680
1,839
1,889
1,916
1,601
Raw Material
1,592
1,736
1,758
1,767
1,472
Personnel
21
26
35
41
37
Others Expenses
66
76
96
108
93
EBITDA
87
89
90
120
109
% chg
24.0
1.9
1.0
33.8
-
(% of Net Sales)
4.9
4.6
4.5
5.9
6.4
Depreciation& Amortisation
5
6
9
10
9
EBIT
82
83
81
110.2
100
% chg
22.4
0.7
(2.6)
36.6
-
(% of Net Sales)
4.7
4.3
4.1
5.4
5.9
Interest & other Charges
35
42
47
46
37
Other Income
0
1
1
1
0
(% of PBT)
0.7
2.0
2.5
1.0
0.2
Exceptional Items
-
-
-
-
-
Recurring PBT
48
42
35
65
63
% chg
6.7
(12.0)
(17.8)
88.0
-
Tax
16
13
12
24
21
(% of PBT)
33.4
31.7
34.6
36.3
34.0
PAT (reported)
32
29
23
41
42
Less: Minority interest (MI)
(0)
(0)
(0)
(0)
(0)
PAT after MI (reported)
32
29
23
41
42
(% of Net Sales)
1.8
1.5
1.1
2.0
2.4
Basic & Fully Diluted EPS (`)
14.5
13.1
10.3
18.9
19.0
% chg
6.5
(9.8)
(21.4)
83.1
-
March 18, 2017
8
Shankara Building Products | IPO Note
Balance Sheet
Y/E March (` cr)
FY2013
FY2014
FY2015
FY2016
9MFY17
SOURCES OF FUNDS
Equity Share Capital
21
22
22
22
22
Reserves& Surplus
179
211
231
269
310
Shareholders Funds
200
233
253
291
332
Minority Interest
0
0
0
0
0
Total Loans
271
279
285
214
271
Deferred Tax Liability
6
8
10
13
15
Total Liabilities
477
521
548
517
618
APPLICATION OF FUNDS
Net Block
133
160
191
219
241
Capital Work-in-Progress
0
-
-
-
-
Investments
-
-
-
-
-
Goodwill
4
15
14
14
14
Current Assets
472
501
521
566
611
Inventories
185
221
232
256
290
Sundry Debtors
260
250
260
281
291
Cash
2
3
2
2
2
Loans & Advances
16
26
24
24
24
Other Assets
9
1
3
2
4
Current liabilities
133
156
177
282
248
Net Current Assets
339
345
344
284
363
Deferred Tax Asset
-
1
0
0
-
Mis. Exp. not written off
-
-
-
-
-
Total Assets
477
521
548
517
618
March 18, 2017
9
Shankara Building Products | IPO Note
Cash Flow Statement
Y/E March (` cr)
FY2013
FY2014
FY2015
FY2016
1HFY17
Profit before tax
48
42
35
65
63
Depreciation
5
6
9
10
9
Change in Working Capital
(64)
(12)
(4)
52
(83)
Interest / Dividend (Net)
(0)
(0)
0
0
0
Direct taxes paid
(13)
(12)
(7)
(11)
(17)
Others
35
41
47
45
37
Cash Flow from Operations
9
64
80
159
9
(Inc.)/ Dec. in Fixed Assets
(31)
(29)
(42)
(38)
(30)
(Inc.)/ Dec. in Investments
(2)
(10)
2
0
0
Cash Flow from Investing
(33)
(40)
(40)
(38)
(30)
Issue of Equity
0
0
0
0
0
Inc./(Dec.) in loans
62
16
9
(71)
57
Others
(39)
(42)
(50)
(51)
(36)
Cash Flow from Financing
23
(26)
(40)
(122)
21
Inc./(Dec.) in Cash
(1)
(1)
(0)
0
(0)
Opening Cash balances
3
2
3
2
2
On acquisition of subsidiary
-
2
-
-
-
Closing Cash balances
2
3
2
2
2
Key Ratios
Y/E March
FY2013
FY2014
FY2015
FY2016
Valuation Ratio (x)
P/E (on FDEPS)
31.6
35.0
44.6
24.3
P/CEPS
27.6
29.2
32.1
19.8
P/BV
5.0
4.3
4.0
3.5
EV/Sales
0.7
0.7
0.7
0.6
EV/EBITDA
14.7
14.5
14.4
10.2
EV / Total Assets
2.7
2.5
2.4
2.4
Per Share Data (`)
EPS (Basic)
14.5
13.1
10.3
18.9
EPS (fully diluted)
14.5
13.1
10.3
18.9
Cash EPS
16.7
15.8
14.4
23.3
Book Value
91.4
106.7
115.8
132.9
Returns (%)
ROCE
17.5
16.2
15.0
21.9
Angel ROIC (Pre-tax)
17.7
16.7
15.5
22.6
ROE
15.9
12.3
8.9
14.2
Turnover ratios (x)
Inventory / Sales (days)
38
42
43
46
Receivables (days)
54
47
48
50
Payables (days)
22
23
25
42
WC cycle (ex-cash) (days)
70
66
65
54
Note: Valuation ratios based on pre-issue outstanding shares and at upper end of the price band
March 18, 2017
10
Shankara Building Products | IPO Note
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
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March 18, 2017
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