Sanghvi Forging and Engineering Ltd

Overview- Company and business

Sanghvi Forging and Engineering Ltd is an ISO 9001-2008 certified company. The inception of the company was in 1990. It is a Vadodara based company. SFEL is engaged in manufacturing and marketing of forging product for the non-automotive sector. It manufactures stainless steel forged and Machine Subtends, Forged Flanges, Forged fitting and CNC Machined Forged parts for various industries oil & gas, fertilizers, power etc. The company also exports the products mainly at Europe, Middle East and Canada. The total installed capacity of forged flanges is 3600 MTPA. The company is an approved global vendor of General Electric (GE) and it has obtained an approval of Mazagaon Dock, a GOI enterprise manufacturing submarines and vessels for defence, and Kuwait National Petroleum Corporation.

 

Industry Analysis

The Indian Forging industry has now emerged as a major contributor to the manufacturing sector of the Indian economy. Forging industry is in the list of the industry type which grows with the GDP of the country and Indian GDP is at growing stage. Forging industry also enjoys the benefits of opportunity of huge exports. The SMEs form the backbone of the industry. The organized sector accounts for about 65-70% of the total forging production in the country. Moreover the industry is already transformed from labour-intensive to capital-intensive.

The Indian Forging industry has been growing at a CAGR of 29%. The capacity of the industry is estimated to be around 1.5 million tonnes. During the year 2007-2008, the overall production of forgings increased to about 1.2 million tonnes. India exports huge forgings. In 2007-2008 exported forgings value was about US$ 472 particularly to USA, Europe and China.

 

Objective of the issue

The size of the IPO is Rs. 36.90 crore with an issue price of Rs. 80-85 per equity shares through 100% book-building process. There are various objective of the company to raise money. The company is setting up a 15000 MTPA open die forging unit at Vadodara. The total estimated cost of the project is around Rs.120.39 crore including margin money which will be partly financed by this issue.

The total estimated issue expense of the company is 300 Lacs which is 7.05% of the issue size which includes legal fee, advertisement fee, registrar fee to name a few.

Remaining part of the project will be financed by means of term loans and internal loans to the extent of Rs 72 crore and through internal accruals of Rs 5.25 crore. The company has already availed a term loan of Rs. 50 crore from State Bank of India and Rs. 22 crore from Bank of Baroda.

 

Risk Factor

There are several risk factor related to the company which must be kept in mind before investing. The company is involved in certain outstanding proceedings which are pending. Any adverse outcome of the above can harm the smooth running of the business.

Weaknesses related to the new projects are highlighted in appraisal report which are mainly high cost estimation and delay in implementation. Currently the implementation is at a preliminary stage. The construction has acquired a leasehold right at Vadodara but the activity is yet to commence. This can increase the capital cost.

As per the financial statement 31 December 2010 the company has contingent liabilities of Rs. 454.86 lacs which may affect the financial condition.

 

Ipo Grading

The IPO grading of the company is graded by CARE. CARE has assigned a ‘CARE IPO GRADE 3’ to the company which is average. The grading is assigned on the scale of Grade 5 to Grade 1 where Grade 5 indicate strong fundamentals and Grade 1 indicate weak fundamentals.

 

Key Financials

INR(IN LACS)

Particulars

2008

2009

2010

Total Income

2387.8

2952.83

2910.55

Total Expenditure

1852.83

2412.35

2305.47

PBT

396.87

350.75

416.06

PAT

252.35

232.38

274.09

 


Overall view

It is advisable for the investor to subscribe the issue of Sanghvi Forging and Engineering Ltd. The grading of the company is also average which indicates towards positive fundamentals. The company will begin manufacturing critical products like rotors for turbine, tube sheet for oil and gas, shafts for ship building and heavy engineering, which currently are being imported from Korea, Italy and Japan. There is also opportunity for growth and expansion as it has a huge scope for exporting the product.

Author: Satish Tayal (MBA ISBM) is undergoing his summer interhship at Kredent Group

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