SEJAL ARCHITECTURAL GLASS LIMITED SMC RANKING OVERVIEW ISSUE HIGHLIGHTS Incorporated in the year 1998, Sejal Architectural Glass Limited is an Industry Architectural Glass India-based company engaged in the business of processing glass. The Issue Size Rs.96.53 Cr – Rs.105.73 Cr company has processing facilities for insulating, toughened, laminated No. of Shares 91,94,155 Shares glasses, as well as for decorative glass. It operates in three divisions: Price Band Rs.105 – Rs.115 architectural and decorative division, proposed float glass division and Offer Date 09th June l’08 trading division. Company’s existing plant is located at Village Dadra, Close Date 12th June ’08 Union Territory of Dadra & Nagar Haveli, District Silvassa. Company Listing NSE, BSE started its commercial operations in the year 2000-01 by setting up a processing facility for insulating glass. Going forward, Avon started Face Value Rs.10.00 another process for toughened glass in the year 2001. Since then, the IPO Grading CRISIL IPO “Grade 1” company has been constantly expanding its operations by adding an (Indicates poor automated lamination line in January 2007. fundamentals) Estimated Use of proceeds Amt. ISSUE COMPOSITION (In Lacs) Net Issue to Public 91,94,155 Shares Setting up of new manufacturing facility for the QIBs 45,97,078 Shares 40948.60 production of float glass. NIBs 13,79,123 Shares 1500.00 RETAIL 32,17,954 Shares Preliminary and pre- operative Expenses Lot Size 60 Shares Margin Money for Working Capital Requirements 1037.50 General corporate purposes and issue expenses* - BOOK RUNNING LEAD MANAGER SAFFRON CAPITAL ADVISORS PVT LTD Total* - *Will be incorporated on finalisation of issue price REGISTRAR TO THE ISSUE: INTIME SPECTRUM REGISTRY LTD INDUSTRY OVERVIEW For the last few years, the domestic demand for Indian flat (float/sheet) glass has been registering a noteworthy increase of 10 -12 per cent per annum and this increase is likely to be sustained in the coming years as well since the two main consuming sectors of Glass- Construction and SHAREHOLDING PATTERN Automotive have been both maintaining a consistently high rate of Pre-issue Post issue growth. The global market for flat glass in 2006 was approximately 44 million Promoters 37.63% 25.27% tonnes. At the level of primary manufacture this represents a value of Promoter Group 39.95% 26.83% around USD 23 billion. Of this tonnage, around 70 per cent is consumed in windows for buildings, 10 per cent in glazing products for automotive Friends, Relatives & Others 22.25% 14.94 applications and 20 per cent used in furniture and other interior QIBs - 16.42% applications. Over the long term, the market is growing in volume terms NIBs - 4.93% at around 4 per cent a year. Europe, China and North America together RETAIL - 11.49% account for 75 per cent of global demand for glass. Europe is the most mature glass market and has the highest proportion of value-added Total 100.00% 100.00% products. INVESTMENT RATIONALE Sejal offers a wide range of glass products and has established Sales over 3 financial years state of art pre-processing facilities (cutting, edging, drilling and washing) and processing facilities (lamination, insulation and tempering). All the key machineries at the existing as well as the 5000 4166.17 proposed facility are bought from various well-established suppliers. 3824.05 4000 2950.28 Company’s proposed project for the float glass is located at 2429.65 3000 Jhagadia, District Bharuch, Gujarat, which is 8 Kms from NH-8 and has the entire necessary infrastructure facilities required for the 2000 plant. The site is also well connected to the railway station. 1000 Sejal’s existing manufacturing facility at Silvassa, is within 200 kms from the proposed backward integration project at Bharuch, 0 ensuring the logistical benefits and cost savings. Both the Mar '05 Mar '06 Mar '07 Dec '07 locations enjoy easy availability to required raw materials and skilled labour. SALES (In Lacs) Company also operates in trading division from its premises named ‘Sejal Encasa’, which is located at Kandivali, Mumbai. This division was started in April 2007, which trades in various in-house brands as well as other manufacturers’ products. The products traded include residential and commercial interior products covering tiles, sanitaryware, mirrors, glass, bathing products, paintings, art and artifacts, sculptures, lights, chandeliers, mirrors and luminaries, Profit over 3 financial years amongst others. 500 469.58 Company’s wide range of glass products are mainly used for 400 interior applications, including bowls, basins, mirrors, partitions and doors, etc. Sejal markets these products under the brand ‘Décor 262.46 278.22 300 222.87 Glass’ and ‘Oyster’. This range offers exquisite mirrors, panels, partitions and other custom designed decorative items. 200 100 0 Mar '05 Mar '06 Mar '07 Dec '07 PROFIT (In Lacs) ABOUT THE PROMOTERS BUSINESS STRATEGY Capitalising on the demand forecast of the MR. AMRUT S. GADA, Chairman & Managing Director - architectural glass industry, Sejal has invested in the After completing Intermediate Education he started his career in existing pre processing and processing facilities at 1989 as a working partner in M/s Taskant Glass Centre which Silvassa. As a backward integration measure, the traded in Glass and Glass Products till 1991. From 1991 company now plans to set up a project for onwards, Mr. Gada started his own retail glass Proprietary firm manufacturing float glass at Bharuch with an installed M/s Sejal Glass House, which traded in indigenous and capacity of 2,00,750 MT per annum. It will enhance the imported Glass and Glass Products. In 1993, he incorporated quality of glass used for its value added products and Sejal Glass Craft Private Limited, which is into the business of brands like Kool Glass, Armor Glass, Fort Glass, Tone manufacturing Interior, Decorative and Designing Glasses. Glass, etc MR. DHIRAJ S. GADA, Joint Managing Director- He has Company has invested in state of the art technologies done his F-MBA (Family Management Business Administration) for glass processing by installing imported from NMIMS, Mumbai. After his graduation in 1996, he joined machineries. It shall further continue to follow the same Mr. Amrut Gada in his venture. He has been involved with Sejal by upgrading the technology from time to time thereby since incorporation and handles all marketing aspects of all the keeping itself abreast of the latest trends and group concerns. He is also Director of other Group Companies advancements. i.e. Sejal Glass Craft Private Limited, Sejal International Limited, Sejal Insurance Broking Limited, Sejal Float Glass Company exports to countries like Sri Lanka, Limited, Sejal Finance Limited. Bangladesh, Mauritius Uganda, Tanzania etc., and plans to focus on the same as these are growing markets. Further, it plans to grow the existing business through market expansion and product offering enlargement. Company has the vision of creating brand image in the market that evokes a sense of awe and faith in the market. Towards this, the company intends to continue to enrich the basket of products offered, backed by aggressive marketing, which will be through the print and broadcast media, as well as direct marketing to consumers through presentations, seminars, billboards, event sponsorships, special event advertisements and advertisements in selected glass periodicals. INVESTMENT CONCERNS Since Sejal is a glass processing company, it does not has a manufacturing history from which future performance can be evaluated. It will be a new entrant in the segment of manufacturing float glass; hence, the revenues and profitability estimates may not be indicative of the future results of operations. The promoters, also, do not have any manufacturing background. Moreover, it intends to commence the production of float glass in Jhagadia, Gujarat, by March 2009. Therefore its prospects must be considered in light of the risks and uncertainties encountered in evolving markets and changing trends where demand and supply for float glass may vary. Company has entered into major supply contracts with Fives Stein India Projects Private Limited (formerly known as Stein Heurtey) and Stein Heurtey, (France & China) Grenzebach Maschinenbau GmbH, Germany and Zippe Industrieanlagen GmbH for supply of major Plant & Machinery required for the float glass project. This contract is enforceable in jurisdictions outside India, which may expose Sejal to higher legal and other costs in case of any disputes with Stein Heurtey, France and/or Grenzebach Maschinenbau GmbH, Germany and affect enforceability of judgments obtained against counterparties. Company’s top three customers account for 54% of the turnover for the nine months ended December 31, 2007. Further the top 10 customerd constitutes 73.81% of the turnover. The loss of any one or more of our customers would have a material adverse effect on our business operations and profitability. About 50% of the revenues for the nine months period ended December 31, 2007 is derived from the sale of Kool Glass. In case of any decrease in the demand of Kool Glass, the sales revenue and business profitability may be adversely affected. FINANCIAL PERFORMANCE PROFIT & LOSS STATEMENT (In Lacs) BALANCE SHEET (In Lacs) For nine For nine months months Particulars March ‘07 March ‘06 Particulars March ‘07 March ‘06 ended on ended on Dec ‘07 Dec ‘07 Net Sales 4166.17 3824.05 2950.28 Shareholder’s Fund OPM (%) 17.57 14.86 11.58 as represented by: Operating Profit 732.00 568.17 341.71 Share capital 1829.64 1033.50 300.00 Total Expenditure 3434.17 3255.88 2608.57 Share application 5.00 2967.00 - money Other Income 289.22 145.60 107.05 Reserves & surplus 3167.10 310.47 560.56 PBIDT 1068.59 679.80 463.59 Shareholders fund 5001.74 4310.97 860.56 PBIT 908.30 557.49 398.84 Net Block 5156.84 4057.84 2371.22 PBT 624.55 400.28 306.09 Investments 6.00 1.00 12.00 PAT 469.58 278.22 222.87 Current Assets, 9051.82 3566.19 1507.48 Loans and advances Secured loans 7242.00 2468.68 1511.01 Unsecured loans 1702.10 581.70 443.24 PEER GROUP COMPARISON RATIOS Current liabilities 3176.30 2415.48 2084.77 Deferred tax liab 282.11 205.08 133.78 Particulars Sejal* Asahi India Net Worth 5001.74 4310.97 860.56 Face value 10.00 1.00 Latest Equity 28 15.99 th Mkt. Price (04 June ’08) - 56.95 DU PONT ANALYSIS Book Value 52.34 18.41 For nine EPS 2.24 0.82 Particulars months ended March ‘07 March ‘06 P/E 51.57 69.45 on Dec ‘07 P/B 2.19 3.09 Net Profit 11.27 7.28 7.55 Margin M.Cap/Sales 7.73 0.92 Asset Turnover 0.24 0.38 0.59 PAT/Sales 11.26 1.34 Equity PBDIT/Sales 25.64 20.62 3.47 2.31 5.84 Multiplier M.Cap 322.00 910.63 ROE 9.39 6.39 26.01 *Figures for Sejal include post issue equity and share premium and ROA 2.70 2.77 4.45 are for period ended Dec 2007. M.cap is based on the price band. Note – P/E, P/B and M.cap for Asahi India is as on 04th June ’08. The remaining figures are calculated on TTM basis for FY 08. VALUATIONS – Net Sales of the company has grown from Rs.2429.65 lacs in fiscal 2005 to Rs.3824.05 lacs in fiscal 2007 growing at a CAGR of 25.45% and for the nine months ended December 31, 2007 was Rs.4166.17 lacs. PAT increased at a CAGR of 3% from Rs.262.46 lacs in fiscal 2005 to Rs.278.22 lacs in fiscal 2007 and was Rs.469.58 lacs in period ended December 31, 2007. At a price band of Rs.105 to Rs.115, the issue is priced at 22.10x at the lower band and 24.21x at the higher band of its annualized EPS of Rs.4.75 for December 31, 2007. However looking at the post issue valuation, at the post issue annualized EPS of Rs.2.24, Sejal will be trading at a PE of 47.08x at the lower end and 51.57x at the higher end. SMC Global Securities Limited: RESEARCH WING Rajesh Jain Head (Research) EQUITY RESEARCH TEAM Fundamental Research Head Fundamental Research Saurabh Jain (Equities) email@example.com Telecom, Banking, Media, Shubhra Gupta Hospitality firstname.lastname@example.org Dinesh Joshi Automobile, Metals email@example.com Aishwarya Nandan Oil & Gas, Energy, Cap. 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