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Readymade Steel India Ltd (RMS)

IPO Snapshot
Highlights of the issue: Issue Snapshot:
Issue period June 27 June 29 2011 Price Band: Rs. 90 Rs. 108 Issue Size: Rs. 34.75 crs Issue Size: 0.321 crs 0.386 crs equity shares QIB Upto 50% eq sh Retail atleast 35% eq sh Non Institutional atleast 15% eq sh Face Value: Rs 10 Book value: Rs 15.13 (December 31, 2010) Bid size: 60 equity shares and in multiples thereof 100% Book built Issue Capital Structure: Pre Issue Equity: Post issue Equity:

June 25, 2011

Readymade Steel India Ltd (RMS) is a steel service provider to the fast growing infrastructure sector with an installed capacity of 27000 MTPA for processing of steel used in the construction industry primarily reinforcement bars into various shapes and sizes like cranked bars, stirrups, verticals, column /beam cages etc. It conducts the processing of steel through use of automated machines from its Plant and delivers ready to use cut and bend steel rods, prefabricated cages and other steel products required for construction activities which it terms as readymade steel. Its product offerings include ready to use steel, primarily re-bars to be used in construction activities in various sectors like roads, power plants, ports, airports, housing, bridges, metros, monorails etc. The product offerings are aimed at overcoming the time and space constraints of construction activities of its clients. Its plant consists of automated shearlines, bending lines, cutting lines, automated stirrup machines etc. and is supported by other material handling equipments. Presently it also uses jigs and fixtures for prefabrication of column and beam cages. The key factor in success of its business is the acceptance of the concept of readymade steel and getting the contractors/ developers to switch from labour oriented conventional method to ready to use steel in construction. Ready to use steel is an effort to provide solutions to improve the construction quality and cycle time. It caters to need of the industry by facilitating them in their requirement of ready to use cut/bend bars and prefabricated steel cages so as to reduce the construction cycle time Since the last few years it has been successful in obtaining orders from major construction companies like Larsen & Toubro Limited, Nagarjuna Constructions Company Limited, etc. to supply ready to use steel products for their construction needs. Objects of Issue: The objects of the Issue are: To part finance the cost of enhancing the capacity at its existing facility at Khopoli and the cost of setting up of new facilities near New Delhi and Raipur. To meet the pre-operative expenses including Issue expenses. To meet margin money requirements of working capital. To meet general corporate purposes.
Cost of Project: Rs. Crs Total Amount

Rs 8.50 crs Rs. 11.71 crs*

* = assuming pricing at higher end of band

Listing: BSE Lead Manager: Arihant Capital Market Ltd. Registrar to issue: Bigshare Services Pvt Ltd Current Shareholding Pattern Pre issue Shareholding Pattern % Promoters & Promoters Group 88.83 Public (incl Employees & 11.17 others) Total 100.0
* = assuming pricing at higher end of band

* Post issue % 64.47 35.53 100.0

S. No. Particulars Enhancement of capacity at Khopoli and setting up of new facilities 1 near New Delhi and Raipur Khopoli New Delhi Raipur 2 Pre-Operative Expenses Including Issue Expenses 3 Margin Money Requirements of Working Capital Total Means of Finance S. No. Particulars 1 Proceeds of the issue 2 Term Loans 3 Internal Accrual Total

10.13 16.62 15.87

42.62 8.26 10.33 61.21

(Source: RHP)

CARE IPO grading: 2/5 indicating below average fundamentals

(Rs. Crs) Total Amount 41.31 15.10 6.11 62.52

(Source: RHP)

For the nine months ended December 31,2010, it reported net sales of Rs.81.61 cr and net profit of Rs.2.32 cr. For the year ended Mar 2010, it reported net sales of Rs.32.37 cr and a PAT of Rs.0.43 cr. Please read important disclosures on the last page

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RMSs strengths:

Early Mover Advantage. Association with various major projects. In depth understanding of the client requirements. Existing customer base to facilitate success in Proposed Project.

RMSs strategy:

Focus on current customers. Create a niche in large size construction projects. Development of new products to emerge as one stop solution provider. Increasing the customer base. Client servicing.

Risks & Concerns:

The concept of ready-to-use steel is at a very nascent stage in India. In the event RMS is unable to convince the

contractors/developers to switch from labour oriented conventional method to ready-to-use steel method, its business, financial position and results of operation will be adversely affected.
RMS is presently dependent upon a few customers for its business. Any reduction or interruption in the business of a key customer,

or a substantial decrease in orders placed by a key customer may have an adverse impact on the revenues and operations of the Company.
RMSs order book may not necessarily indicate what its future sales will be and its actual sales may be significantly less than

estimated sales, which could adversely affect its results of operations.

RMSs current processing facilities are geographically located at one place, i.e. Khopoli, Raigad District and the loss or shutdown of

operations at the facility could have a material adverse effect on it.

The commencement of commercial operations of RMSs Proposed Project involves many uncertainties and risks that may have a

material adverse effect on its business, results of operations and financial condition
Some of the equipment/machinery RMS intends to deploy are expected to be imported and are to be paid for in the foreign currency.

Fluctuations in foreign exchange rates may adversely affect the cost of project.
Some of the Promoter Group entities have objects similar to that of RMSs business and this could lead to a potential conflict of

Increases in steel prices, which would increase RMSs cost of processing its products, may adversely affect its operating margins and

results of operations
RMS may face risks arising from any disproportionate increase in labour costs including in relation to increased wage demands,

labour unrest, or claims arising from industrial accidents

Environmental and safety regulations impose additional costs and may affect RMSs results of operations. The conditions and restrictions imposed by RMS lenders could restrict its ability to expand its business and operations RMSs operations will have significant raw material requirements, and it may not be able to ensure the availability of the raw materials

at competitive prices, which may adversely affect results of its operations

RMS depend on its contractors and agencies to construct and develop its Project, some of whom supply sophisticated machinery it is

exposed to risks relating to the timing or quality of their services, equipments and supplies which might have an adverse effect on its business, financial condition and results of operations.
A slowdown in economic growth in India could cause RMSs business to suffer

Extract from grading rationale by CARE: The grading is constrained by relatively small size of operations of the issuer in terms of revenues and networth, limited clientele, execution risks associated with ongoing expansion project and low bargaining project vis--vis customers. The grading is also constrained by the fact that the concept of ready-to-use steel is at a nascent stage in India and is yet to acquire industry wide acceptance. However, the grading derives strength from the reasonable experience of issuers promoter in steel related industry, established relationship with few key customers, healthy order book position and moderate gearing ratios. Please read important disclosures on the last page

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RETAIL RESEARCH Fax: (022) 30753435 Corporate Office HDFC Securities Limited, I Think Techno Campus, Bulding B, Alpha, Office Floor 8, Near Kanjurmarg Station Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Fax: (022) 30753435 Website: Disclaimer: This document has been prepared by HDFC Securities Limited and is meant for sole use by the recipient and not for circulation. This document is not to be reported or copied or made available to others. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. The information contained herein is from sources believed reliable. We do not represent that it is accurate or complete and it should not be relied upon as such. We may have from time to time positions or options on, and buy and sell securities referred to herein. We may from time to time solicit from, or perform investment banking, or other services for, any company mentioned in this document. This report is intended for Retail Clients only and not for any other category of clients, including, but not limited to, Institutional Clients Disclaimer: HDFC Bank (a shareholder in HDFC Securities Ltd) is associated with this issue in the capacity of Refund Bankers to the issue and will earn fees for its services. This report is prepared in the normal course, solely upon information generally available to the public. No representation is made that it is accurate or complete. Notwithstanding that HDFC Bank is acting for Readymade Steel India Ltd. this report is not issued with the authority Readymade Steel India Ltd. Readers of this report are advised to take an informed decision on the issue after independent verification and analysis. Please read important disclosures on the last page

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