Avoid Birla Cotsyn IPO: Angel

Angel Broking has come out with a report on Birla Cotsyn's IPO. It has recommended investors to ignore the issue.

The issue has opened for subscription with its initial public offering (IPO) of Rs 144.18 crore. The issue will close on July 4, 2008. The price band has been fixed at Rs 15-18 per equity share.

Angel Broking's report Birla Cotsyn's IPO:

Birla Cotsyn (BC) has elaborate plans of expanding its integrated textile project situated at different locations. It also has plans to enter the Retail sector along with foraying into garment manufacture. However, any delays in the company’s expansion programme or implementation of its plans for retail, warehousing and logistics could adversely impact its Profitability.

The company currently derives 25% of its revenues from Exports to countries such as Yemen and Turkey. It proposes to start exporting to Europe and America post execution of its expansion programme. It expects exports to contribute 50% of its total revenue going ahead. However, it would be highly susceptible to forex fluctuations, which could impact its overall Profitability.

Valuation:

BC has chalked out huge expansion plans in areas it was hitherto never present. It has been in the business of cotton ginning, pressing and oil expelling, has decided to foray into the spindling of synthetic and cotton yarn, garment manufacturing and textile retail since the last seven decades. There is a lot of uncertainty attached to the company's success at least in the near future considering that the Indian Textile industry is highly competitive. Further, its performance is highly susceptible to forex fluctuation as a substantial portion of its revenue is derived from exports. In view of these risks associated with the company’s ambitious expansion plans, we believe the IPO is aggressively priced, especially considering that relatively bigger and experienced listed peers are available at better and attractive valuations.
We recommend investors to ignore the issue.

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