IPO update: Exxaro Tiles

Exxaro Tiles came out with its IPO four months ago. You can find Value Research's IPO analysis here. This article will focus on the post-listing performance of the company in the market and financially.

Our analysis of the IPO
Exxaro Tiles is engaged in the business of manufacturing and marketing vitrified tiles which are predominantly used for flooring solutions. Initially, they started out as manufacturers of frit, a raw material used in the manufacturing of tiles, but diversified as years passed. At present, their operations are divided into two categories; double charged vitrified tiles and glazed vitrified tiles. They supply their products to various projects including residential, commercial, educational institutions, hotels, hospitals, and more. Based on the company's production capacity and distribution network, we gave it a score of 14 out of 27. We had two major concerns; the first is the charge of Rs 142 crore that it had on its movable and immovable assets, and the second is sub-par financials. The company had a high amount of trade receivables and contingent liabilities, low return on equity and capital employed, and a lack of consistent revenue growth in the last three years.

Our rating of the company was based on the following factors:

• Out of 11 business metrics, the company did well only on three.
• Out of six management-related metrics, the company did well on all of them.
• Out of eight financial metrics, the company did well only on three.
• Out of three valuation-related metrics, the company did well on two.

Stock performance since listing
Exxaro Tiles received a great response from the investors as it was subscribed 22.7 times. The institutional portion was subscribed 17.7 times, the high net worth investors (HNI) portion was subscribed 5.4 times, the retail portion was subscribed a massive 40.1 times, and the portion reserved for employees was subscribed 2.5 times.

But despite such a great reception, it had a tepid debut as it listed at a 5 per cent premium over its issue price at Rs 126. But slowly the price started moving up and at present it trades at Rs 147, which is 13.5 per cent higher than its list price.

Business performance
The company came out with its Q2 results and it was extremely attractive. The revenues increased by 47 per cent and profit increased by 20 per cent on a YoY basis. On a sequential basis, the revenue grew by a massive 75 per cent and the company posted a profit of Rs 5.6 crore as against a loss of Rs 76 lakh in the previous quarter.

As the economy reopened, demand increased which was seen in their Q2 results. The management has said that they expect more demand in the upcoming quarters. This result was a catalyst for the share price as it started moving upwards.

What to do now?
The major concern investors had regarding the company was its valuations. With the sub-par financials that the company had, the valuations seemed expensive. Now they have jumped further due to an increase in price as the company currently trades at a P/E of 57 times against peers' average level of 26 times.

But the resurgence in demand has been positive for the company and this is expected to continue in near future. Though valuations may not offer room for growth, demand may. Investors can do their due diligence on the stock and overall demand before taking a position as valuations are still a concern.

Disclaimer: This analysis is not intended to serve as a recommendation. Readers must do thorough research before investing in this company. If you are interested in our stock recommendations, please visit www.valueresearchstocks.com.