BS TransComm IPO - Review + Recommendations

[jatinrshah]

Subscribe to BS TransComm IPO: Hem Securities

BS TransComm is engaged in the business of providing a range of services to telecommunication infrastructure providers for setting up their passive infrastructure and to power transmission companies for setting up their transmission lines and sub-stations.

The report says, "The company is bringing the issue at price band of Rs 257-266 per share on P/E multiple of 10-11 at post issue annualized EPS of Rs 25. Company with its pan India presence covering all 23 telecommunication circles in telecommunication sector, integrated business model and access to technology is looking an attractive issue. Investors can subscribe the issue."

[RG]

BS TransComm IPO looks expensive: Nirmal Bang
The initial public offering of BS TransComm (BSTL), a manufacturer of towers for telecommunication and power sectors, has opened for subscription with 76,79,410 equity shares at a price band of Rs 257-266 a share. Nirmal Bang feels that issue looks expensive in comon to established players.
BS TransComm is engaged in the business of providing a range of services to telecommunication infrastructure providers for setting up their passive infrastructure and to power transmission companies for setting up their transmission lines and sub-stations.
Subsequent to its acquisition of SAPL, it is also engaged in the designing, building and deploying related technology products and solutions to the telecommunications infrastructure sector.
The company has a manufacturing capacity of 1,20,000 MTPA with a backward integrated structural steel plant supporting the raw material required for tower manufacturing. It is currently undertaking a project to expand the manufacturing capacity to 240,000 MTPA.
he report says, "We believe the integrated business model with the increased capacity and future foray into new areas like transformers, gas based insulators in collaborations with Chinese companies will add new growth avenues to the company. However limited past track record, higher working capital cycle and its ability to sustain margins in future remains a concern. On the FY10 earnings, the stock is offered at the PE of 24.1x and 23.3x (diluted equity) on upper band and lower band respectively which is comparatively costlier than its listed peers. Our back of envelope calculations of FY11 diluted earnings of Rs 20.5 discounts the issue 12.9x and 12.5x at upper and lower band respectively, which looks expensive in comon to established players."

[sunil]

Anand Rathi has a Long Term Subscribe Recommendation.

Sushil Finance Sanket Shahs advises,

We believe that the T&D business and Telecom businesses are areas wherein strong management experience and execution track record are of prime importance. Further the T&D space has been witnessing fierce pricing competition due to entry of fringe players. Although the company has diversified business model and strong growth plans, we believe that the lack of managements experience, stretched working capital cycle and highly leveraged balance sheet are key risk factors associated with the company. Hence we have given a “B” rating to the company and recommend our investors to avoid the issue.
 

[sunil]

Networth Direct's View on this IPO

The company is performing good business in telecommunication infrastructure & power transmission market. With good expansion plans and its emergence in solar and wind hybrid energy solution business, we hope that it is capable of achieving good position in the industry in near future, considering the demand outlook in both the sectors. The issue is priced at a reasonably price band of ` 257‐266. At its upper price band the P/E obtained as 16x on EPS of Rs16.8 for FY10 on post IPO equity. We recommend SUBSCRIBE the issue for long term gains.

[sunil]

HDFC Sec's Views on this Issue,

BSTL has strong client base, backward integrated operations and the long track record of the promoters in steel trading and rolling activities. The company has strong return indicators and healthy revenue growth demonstrated in the past, and the positive demand outlook for towers, given the large capex planned in the power transmission sector in India. It has limited track record in tower manufacturing and services, although this risk is partly mitigated by the fact that the company has demonstrated the capability to effectively transition from steel trading to tower manufacturing and services within a short span of three years. BSTL has exposure to raw material price fluctuation risk although this risk is partly mitigated by price escalation clauses attached to most longer  duration tower manufacturing contracts, and the high market risk associated with its expansion plans, given the high competitive Intensity of the business.

Though the company has showed improved margins in Q1FY11, it may be difficult to maintain them in a competitive industry. Further continued order accretion is another challenge for the company. The issue is priced fairly and leaves little on the table for investors.