Thursday, October 6, 2022

Exxaro Tiles IPO: Exxaro Tiles IPO: Should you subscribe or give it a miss?


NEW DELHI: Gujarat-based Exxaro Tiles on Wednesday kicked off its Rs 161 crore IPO.

On the block is a fresh issue of 1,11,86,000 shares and an offer of sale (OFS) of 2,238,000 shares by one of its shareholders. The price band of the issue is fixed at Rs 118-120.

On Tuesday, the company allotted 19,73,325 shares to two domestic funds at the upper end of the price band, totalling Rs 23.68 crore.

Last heard, the unlisted stock was commanding a premium of Rs 20 in the grey market. Analyst views vary widely on the issue, with some finding the P/E valuation of 35.3 times (on restated FY21 EPS of Rs 3.4) demanding, while others say it’s reasonable.

“The return on equity (RoE), the demanded valuation look to be highly stretched. There are already many better-established peers in the listed space, which an investor can consider for investment. Thus we are assigning an ‘avoid’ rating to the issue,” Choice Broking said.

The tiles sector in the country is a fragmented one, with a handful of large companies holding dominant positions. Exxaro Tiles is engaged in the manufacturing and marketing of vitrified tiles used majorly for flooring solutions. The company has two manufacturing facilities at Vadodara and Talod spread over 1.5 lakh square meters. Its business operations are broadly divided into two product categories – double-charge vitrified tiles and glazed vitrified.

The company’s products are sold via a network of 2,000 dealers. It claims to have wide presence in Tier I cities.

Amarjeet Maurya, AVP for Midcaps at Angel Broking, said the valuation looks low compared with Somany Ceramics’ 43.7 times and Kajaria Ceramics’ 52.7 times.

“Exxaro Tiles has a better revenue growth track record compared with its peers (over FY18-21). We believe the valuation is reasonable. We recommend a ‘subscribe’ rating on the issue,” it said.

For FY21, the company reported a 6 per cent rise in sales at Rs 255 crore. Net profit jumped 36 per cent to Rs 15.2 crore during the year. The company said it has the highest operating margins before depreciation and amortisation (Ebidta margin) of 19 per cent among peers. That said, its return on equity at 11.9 per cent is lower than Kajaria’s 16.5 per cent. Exxaro’s total borrowings at the end of FY21 stood at Rs 161 crore.

Arihant Capital said the organised tiles industry has been gaining market share post GST implementation. Midsized companies having stronger balance sheets and stable product portfolio look set to deliver higher growth potential going ahead.

“We like Exxaro, which is backed by its wide-spread dealer network, in-house manufacturing facility, and wide product portfolio having 1,000-plus designs. The company is continuously focusing on enhancing brand value and continue to improve operating efficiencies through technology enhancements and setting up own gas station, which will help it sustain margins going ahead,” Arihant Capital said.

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