Business of Shri Balkishan Agarwal Industries Limited
Shri Balkishan is a glass manufacturing company established in 1990 located in Firozabad and the primary products of the company are glassware, tableware, bangles and kitchenware. While the initial furnace capacity of the company was 40 tons per day the company increased its capacity three times to 120 tons in year 2004 and also engaged itself in getting various quality certifications as well as installation of modern machinery to replace some of the manual processes and unlock productivity.
Such steps enabled the company to increase the turnover from Rs. 8.83 in 2003-04 to Rs. 31.06 crores during 2004-05.
Shri Balkishan has over 200 products that they sell to a range of diversified customers which include both retail as well as industrial customers. Some of the better known customers of Shri Balkishan are Vishal Mega Mart, Big Bazaar and Metro Cash and Carry. These customers buy the products categorized under press glass as bowls, cups and saucers, glass tumblers, mugs / jugs and plates.
Among the other products the company sells bottles of sizes ranging from 100ml to 1000ml and industrial consumers are the major customers for these who are the manufacturers of beer, alcohol, pharmaceuticals, perfumes and cosmetics.
The corporate consumers and retail customers buy the products that fall under the thin glass, decorative articles and handicrafts category like wine glasses, glass tumblers, dinner sets, dishes and flower pots etc.
Summary Financials of Shri Balkishan Agarwal Industries Limited
The thing to keep in mind while looking at financials is that it is important to consider financials of the past few years and it is not enough to just consider the financials of just one or two years. For instance even in the case of Shri Balkishan the EPS for 2006 is Rs. 5.50 whereas it was just Rs.1.63 the year before, Rs.0.07 in 2004, Rs. 0.4 in 2003 and Rs. 0.38 in 2002.
While the above EPS has increased on the back of an increased revenues base from Rs. 23.21 crores in 2005 to Rs.31.06 crores in 2006 which again is a result of the increase in capacity expansion from 40 to 120 tons.
However while valuing the fair price of the IPO you must not stick to the number of just the last financial year which is especially higher in this case. This is because increase in revenue is a result of employing more capital which involves greatest interest outgo which in this case rose from Rs. 45.63 lakhs in 2004 to Rs.3.33 crores in the next financial year. Same is the case with depreciation charges which also increase as the investment in fixed assets increase. The same rose from Rs.45.63 lakhs in 2004 to Rs.1.46 crores in the next financial year and then to Rs.2.5 crores in 2006.
Such spike in costs that come along with increased capacity and revenues make it necessary for the investors to consider the long term earning of the company and not only the last year’s earning.
Risk Factors
Financials are an important criterion of deciding whether one should opt for an IPO or not and in the case of Shri Balkishan one must note that in the immediate preceding financial year 2005-06 there has been a substantial jump in profitability. However the best thing for an investor would be to discount this spurt in income and look at the long term rate of profit and growth that the company is enjoying.
Along the same lines the Contingent Liabilities of the company have also substantially increased in the last fiscal increasing from Rs. 92.46 lakhs to Rs.1.88 crores which is more than double in one fiscal.
Shri Balkishan has SBI as its principal banker and during February 2006 SBI has classified their account as a Non Performing Asset. This matter has been necessitated by a dispute in excess interest being charged by SBI and the company. The dispute has now been resolved and the bank will charge a lower interest retrospectively subject to completion of IPO and a certain other conditions.
The IPO is being carried out to raise funds for expansion however the capacity utilizations of the furnace has never been more than 52% currently.
Conclusion
The company is one which is long standing and has got a well diversified base and modern machinery in a growing market. However the current financials and quite out of sync with the financials in the years preceding to that and that is a cause of a huge risk that the issue price of the IPO might be quite high as compared to an averaged out earning.
