Exxaro Tiles Ltd

download 1 Exxaro  Tiles Ltd

Exxaro Tiles IPO opens on the 04 August and closes on 06 August. It is a rather small sized issue but has a fresh issue and an OFS component. Exxaro Tiles, based out of Gujarat, is one of the major manufacturers of vitrified tiles and special focuses on glazed vitrified tiles and double-charged vitrified tiles. Nowadays, vitrified tiles are commonly used in homes, offices and even educational institutions as they are easier to maintain and hence economical.

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Exxaro has 2 manufacturing facilities in Gujarat located at Padra and Talod. Exxaro has total installed capacity to manufacture 1.32 crore square metres per year. The company currently offers over 1000 designs across 6 standard sizes. While the export market is not too large, Exxaro does have a small export audience in countries like Poland and Bosnia in Eastern Europe.

Key points to note about the Exxaro Tiles IPO.

Here are some important points you must know about the company and the issue, before taking a view on investing in the IPO.

  • Exxaro offers a wide palate of designs across 6 standard sizes of vitrified tiles and it reaches to existing and potential customers through its all-India network of 2,000 plus registered dealers.
  • It must be noted that the manufacture of tiles has a number of established listed names in the market. In addition, there is also a massive unorganized segment that is active in manufacturing and both these segments could offer stiff competition for Exxaro.
  • Another point to note about the IPO is that the lag effect of the pandemic has been limited as Exxaro typically operates in the non-cyclical business. It caters to the OEM construction market and also to the replacement market.
  • Strategically, the need for flooring tiles is a demand that can be postponed but the demand is always there. That works in favour of such companies.

Revenues, profits and usage of IPO funds

Here is a glance at the financials of Exxaro Tiles over the last 3 financial years ending in March.

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The company is small in terms of size but it has consistently grown profits over the last 3 years and that is evident in the EPS also. Net margins at about 6% is normal in this highly competitive businesses.
The funds raised as part of the fresh component will be utilized for repayment of debt and for general working capital applications. Exxaro, has debt of Rs.75 crore of long term debt and equivalent amount of short term debt. For a small sized company, reduction of debt will reduce the finance costs and also improve the solvency of the business model.

Investment summary of Exxaro Tiles IPO

If you look at the valuations and the business model, the quick take is that the pricing may be slightly on the aggressive side. In post-IPO terms, the issue is priced at around 37X earnings of FY21. This is at par with listed names and leaves limited room for gains. However, growth in profits has been a reality for the company in the last 3 years.
The net profits have been growing at 25% compounded on an annual basis. If this pace of growth is maintained then the stock does look reasonable looking at projected profits of next 3 years.

Disclaimer

The article is for informative purpose and does not suggest to buy or sell or hold. Decision or investing is to be taken by individuals.

Evaluate investing in the IPO based on your individual risk tolerance, investment Span etc.

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