Shankara Building Products IPO opens for subscription today and it has received positive reviews and ratings from analysts at brokerage houses. The building material retailer IPO appears to be receiving tailwinds from the fantastic listing of Avenue Supermarts (DMart). As one of the few organized players in this segment, Shankara Building Products IPO has a novelty value attached to it as well. Here is a sampling of Shankara Building Products IPO recommendations.
Analysts at ICICIdirect.com have advised investors to subscribe to the IPO. “SBPL’s share of revenues from the higher margin retail segment has increased from 24% in FY14 to 42% in 9MFY17 primarily due to healthy store expansion. Higher contribution from the retail segment has led to increase in blended EBITDA margins from 4.6% in FY14 to 6.4% in 9MFY17. Going forward, the company plans to further increase its focus on retail segment, auguring well. On a consolidated basis, at the upper end of price band | 460, P/E multiple (pre issue) works out to ~24.3x of FY16 numbers. We recommend that investors SUBSCRIBE to the issue,” noted its research note.
Angel Broking also finds the prospects of Shankara Building Products bright with a significant improvement in operating margins in recent years. “Considering the company’s strong retail presence, diversified product offering, substantial same store sales growth (last five years average growth is 23%) and robust retail revenue of ~29% over FY2012-16, we expect that SBPL to witness higher revenues from its retail business going ahead. At the upper end of the price band, the pre issue P/E multiple works out to be 18.2x of its annualized 9MFY17 numbers. On EV/Sales, the issue is valued at 0.6x of annualized 9MFY17 numbers. Considering its long term prospects and reasonable valuation, we recommend Subscribe rating on this issue,” said the brokerage house’s note on Shankara Building Products IPO recommendations.
The recommendation on Shankara Building Products IPO is positive from Nirmal Bang as well. “Over FY13- FY16 the revenues of SBPL have grown at a CAGR of 4.8% however, growth in the retail segment was 28% CAGR. EBIT in the retail segment has grow at 99% CAGR over 2013-2016 with EBIT margin increasing from 1% in FY13 to 6.3% in FY16 and 7.1% for the nine month ended December 2016 as compared to consolidated EBIT margin of 4.7% in FY13 to 5.5% in FY16 and 5.9% for 9 month ended December 2016. According to the management, SBPL plans to focus more on the retail segment to drive growth and stabilize the revenue growth in enterprise and channel segment. SBPL has reported healthy RoCE and RoE at 28.2% and 14.2% for FY16 despite aggressive expansion in the retail segment. We expect SBPL to report healthy numbers for FY17 and FY18. On the valuation front, at the upper end of the price band of Rs 460, as per our estimates, SBPL is offered at PE of 18x its FY17E EPS of Rs 25 and 15x its FY18 EPS of 31. We recommend subscribing to the issue,” said its note adding to the list of positive Shankara Building Products IPO recommendations.
Read Also: Shankara Building Products IPO Discussion
Choice Broking has also added a positive word in Shankara Building Products IPO recommendations. The brokerage house believes strong focus on retail operations in coming years is likely to improve the company’s profitability. “Annualizing the nine months performance, we arrive at an EPS of Rs. 24.2 for FY17. Thus at a higher price band, the demanded P/E multiple is around 19x, which we believe is justified keeping in mind its average RoE of 14% over FY12-16. Considering the above observations, we recommend a “SUBSCRIBE” rating for the issue,” said Choice Broking’s research report.
Not all analysts are positive in Shankara Building Products IPO recommendations as Centrum has a Neutral call. The brokerage house believes the company will not benefit from the large Offer For Sale (OFS) component. “At the higher price band of ₹460, the offer is valued at 19x P/E on 9MFY17 annualized basis (post dilution), which appears to be mature given the current set of financials (EBITDA margins of ~6% and RoE of 15%). Further 87% of the issue is offer for sale and the issue proceeds will not come into the company. However, SBPL is currently amidst a business mix change (with focus on retail) which could result in improvement in financials over the next few years. Hence we are Neutral on the IPO,” said its research note while adding that the building materials market in India is expected to improve owing to the increase in government investments, implementation of GST and rapid urbanization.