What is the current status of three recently launched IPOs?
-Surjeet Pugalia
DQ Entertainment (International), Technofab Engineering and MOIL, whose initial public offerings (IPOs) came in 2010, have witnessed a significant correction in their prices since listing. Stocks of DQ Entertainment (International) registered the sharpest fall of around 75 per cent followed by Technofab Engineering declining around 48 per cent and MOIL correcting by nearly 45 per cent. Is this correction an investment opportunity – lets explore.
DQ Entertainment (International) is one of the leading producers of animation, visual effects, game art and entertainment content for the Indian as well as global media and entertainment industry. The company recently signed three new contracts, associated with two new productions, which were concluded at MIPTV in Cannes, France. It has a low debt-to-equity ratio of 0.23 times (FY11) and commands a high operating margin, averaging around 34 per cent over FY08-11. Its net operating margin, however, averaged around 10 per cent during the period. Its earnings per share (EPS) has been falling since FY09 (albeit marginally) and registered a meek growth of 11.7 per cent over three years. The sluggish earnings growth of the company currently paints a gloomy picture.
Next is Delhi-based EPC player, Technofab Engineering, which has carved out a niche for itself in power, water, oil and gas and industrial infrastructure. The company’s current order book of Rs 1,020 crore, which is 2.8 times its TTM revenues, provides strong revenue visibility for the next 24-30 months. In a high working capital intensive industry like construction where high debt-to-equity ratio is a norm, Technofab Engineering’s extremely low debt-to-equity ratio of 0.1 – compared to the peers’ average of around 2.1 times – is a positive. Its EPS has grown over 51 per cent over three years. A comfortable balance sheet with low gearing provides ample room for Technofab to fund future growth without the need for equity dilution. Although the company has been getting large orders from its overseas markets, one cannot ignore operational hurdles arising from political and economic risks.
And lastly MOIL, India’s largest manganese ore producer, which has started expanding its existing mines to augment production capacity to 1.5 million tonnes by CY15 from 1.0 million tonnes in FY11. This zero-debt company registered an average operating profit margin of 72.8 per cent and net profit margin of 46.5 per cent, over five years. However, given the recent slump in manganese prices by over 40 per cent since January 2011 on account of oversupply in global markets, MOIL margins are expected to remain under pressure during FY13. The company faces near-to-medium term risk of margin pressures.
This article was originally published on May 17, 2012.
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