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Thursday, May 3, 2012

IPO Analysis - Samvardhana Motherson Finance Limited

Samvardhana Motherson Finance Limited (SMFL) is a multinational business with manufacturing and design capabilities providing full system solutions to diverse industries. Checkout it's Initial Public Offering (IPO) grading and recommendation.

SMFL was founded in 2004 and provides an end-to-end range of design and manufacturing solutions to the automotive customers, including product concept and product design, engineering, manufacturing, sub-assembly and the production of integrated modules.

Issue Open: May 02, 2012
Issue close: May 04, 2012
Price Band: Rs. 113 - Rs. 118 Per Equity Share
Minimum Bid Size: 50 Equity Shares
Face Value: Rs. 10 Per Equity Share
Issue Type: 100% Book Building
Maximum Subscription Amount for Retail Investor: Rs. 200000

IPO Grading / Rating:
ICRA has assigned an IPO Grade 4 to Samvardhana Motherson Finance Ltd IPO. This means as per ICRA, company has 'Above Average Fundamentals'. This rating is influenced more by the group’s standing, production capabilities and the diversified product portfolio. But as on today, company is currently in losses.

Future Prospects
Consolidated total debt of the company is Rs.3918 cr against networth of Rs.1433 cr. After this IPO, company is planing to reduce the debt by Rs.966 cr. Reduced debt will lighten interest costs and give a boost in balance sheet for profits, the effect of this will not be visible anytime soon in balance sheet.

IPO Valuation
SMFL reported EPS of Rs 2.90 in FY11 and had posted loss of Rs2.50 per share in FY12. Company has fixed a price band of Rs.113 to Rs.118 for this IPO. Company has also allotted nearly Rs.2 cr share to some anchor investors at a price of Rs.115. This valuation looks very high for IPO and especially when company had made preferential offer at Rs.52.10 per share in sept2011. From price to Book Value perspective, the ratio stands at more than 5 for lower and upper price band of IPO. Value investing says, value stock is the one which has P/BV ratio of 1 or lower. This IPO offering is way away from being an value investment for IPO investors.

Small investors need not buy IPO of SMFL. Better stay away.

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