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Ittefaq Iron Industries Limited

- - - - - Ittefaq Iron Industries Limited Ittefaq Iron IPO

13 replies to this topic

#1
Mansoor

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    Ittefaq Iron Industries Limited is coming up with an Initial Public Offering (IPO) to raise PKR 500 million. At a floor price of PKR 12/share, the company will issue 41.75 million shares out of which book building portion would form 31.3 million ordinary shares and rest would go to general public.

    It intends to utilize 70% of the proceeds to purchase raw material (scrap and alloys) and rest to manage the manufacturing expenses. Considering that it raises more than the amount needed, excess fund would be utilized in paying off its short term borrowings and redesigning the girder mill, which at the moment, is unutilized.

    Higher Infrastructural activity to unlock demand potential of rebar industry

    With one of the lowest steel consumption per capita of 37.5 kg in the region, the steel industry in Pakistan remains highly unorganized. Nevertheless, surge in infrastructural development has led the steel industry of the country in gaining massive traction. With 62 billion PEC projects, mainly constituting of power projects and development of roads and over 9million backlog of housing units, the rebar market is going to be one of the biggest beneficiaries in the coming years.

    IPO proceeds to be mainly utilized in procuring scrap

    The company, located at the northern region, with the re-rolling capacity of 120,000 MT, as been marred with the problems in the working capital since over 70% of its clientele consists of government-backed organizations, which take about 80-90 days to pay the dues.

    The company intends to generate funds, wherein they intend to utilize PKR 351 million in procuring 9,500 MT of scrap along with required alloys.

    Lower Utilization partly due to electricity shortfall

    Another major impediment for the company has been the electricity shortfall. As per the management, the company receives about 14 hours of electricity every day. Resultantly, the capacity of re-rolling mill has remained low, with utilization of about 44% in FY16. Add ing to the woes, the company is paying gas charges based on LNG rates of PKR 900/mmbtu.

    As per the management, the re-heating cost of billet takes about PKR 2500-3000/ MT. Going forward, the management thinks that the power situation will smoothen out but its major emphasis , as of now, is to utilize the available capacity.

    Higher regulatory duties to improve billet utilization

    Since the regulatory duties on billets have been imposed and international steel prices have also surged, the company has started relying less on the imported billets. As per the management, it is expected to increase its melting capacity to 67% in FY18 from meager 18% in FY16. Also, the matter of anti-dumping duty of billets and rebars is in consideration, which if imposed, shall further benefit the rebar producers.

    High receivables to remain problem in coming years

    The company’s topline is heavily concentrated, since about 22 customers contribute 43% to the company’s overall sales. As per the management, 40%-60% of their rebar supplies are currently going to Orange Line Rapid Transit. Going forward, the company is also vying for projects, where the contractors are government-backed organizations. This means that their receivables will remain highly inflated since these contractors take about 80-90 days
    to pay their dues.

    Company to utilize excess funds in paying off short-term debt and redesigning girder mill

    If the company is able to raise more than required (PKR 500 million), it intends to utilize the excess amount in paying off its short term borrowings, which as of December 2016, stood at PKR 829 million. Also, it intends to redesign its girder mill to the requirements of Pakistani girder market, which was procured to produce girders for the Afghanistan market.


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    #2
    Rehan sh

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    worth buying or at what price it should be considered?
    Note:Do your due diligence before making any investment decision.

    Thank You & Regards
    Rehan Sh

    #3
    Mansoor

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    View PostRehan sh, on 09 May 2017 - 10:57 AM, said:

    worth buying or at what price it should be considered?

    Rehan bhai the Great, hope after reading below post you can decide:


    Ittefaq Iron Industries Limited


    Underdog Takes a Run at Greater Market Share; Subscribe up to strike price of PKR17.5/sh

    · Ittefaq Iron Industries Limited (IIIL) involved in re-bars manufacturing business plans to raise funds (PKR501mn at floor price of PKR12/sh) through IPO for meeting its working capital requirements.



    · The company's dispatches have remained flat during the past 3 years (average utilization in FY14-16: 43%) owing to working capital issues and power shortages. Though the management is hopeful that equity injection will help it to raise its utilization level.



    · At floor price, the stock's implied FY18/FY19 PE stands at 6.8x/5.7x. Our indicative fair value of PKR21/sh, offers 75% upside to floor price. We recommend subscribe up to strike price of PKR17.5/sh.




    IPO to finance working capital requirement: Ittefaq Iron Industries Limited (IIIL) belongs to Alshafi Group of Companies whose roots can be traced back to Ittefaq Foundries established by Mian Muhammad Sharif in 1940s. While Alshafi Group was carved out from Ittefaq Foundries in 1990s, Alshafi Steel (melt shop) & Ittefaq Sons (rolling plant) were incorporated in 2004 and started their commercial operations from 2006. Alshafi Steel (melt shop) & Ittefaq Sons (rolling plant) were merged in 2009 into Ittefaq Iron Industries. The manufacturing facility is located near Raiwand, Districk Kasur. The company has Induction Furnace/Bar Mill/Girder Mill of 120K tpa each, where the Girder Mill operations remain suspended as its target market (i.e. Afghanistan) did not remain suitable due to border tension and security issues. The management believes that modification in design of Girder Mill may enable it to produce Angels/Channels/Girders suitable for domestic market. The company has not yet conducted feasibility study of the said changes and its current growth strategy does not include Girder Mill Operations. The company plans to raise funds over and above PKR501mn through 41.75mn shares issue (31.82% of the post-IPO capital) at floor price of PKR12/sh. 75% of the total IPO would be issued to institutions HNWIs through the book building process and the rest to the general public. The management plans to utilize IPO proceeds to meet its working capital requirement for increased output. While the excess funds may be used for: i) repaying short term debt (other than sponsors’ loan), ii) modification of Girder Mill subject to economic feasibility, and iii) any other activity related to the company’s operations.

    Energy issues may remain pressing: Despite strong growth witnessed in re-bars demand in recent years, IIIL dispatches have remained flat in last 3 years (average utilization in FY14-16: 43%) owing to working capital issues and power shortages. The management is hopeful that equity proceeds from IPO will help it to improve utilization levels. However, energy issues may remain more pressing for the company. In this regard, we estimate that 6.2MW was available in FY16 as against the maximum demand of 9.7MW (11.0MW inclusive of demand for Girder Mill). As the energy situation is expected to improve in FY18 as RLNG based power plants come online in Punjab, we have assumed 30%YoY jump in FY18 production followed by 10% p.a. thereafter and maximum utilization of 75%. Based on our preliminary estimates, we expect FY18/FY19 EPS to stand at PKR1.76/2.11 (assuming 63%/69% utilization in FY18/19). We estimate that every 10ppt increase in utilization is expected to augment earnings by PKR0.36/share.

    Subscribe up to strike price of PKR17.5/sh: At floor price, the stock’s implied FY18/FY19 PE stands at 6.8x/5.7x. While the company has so far reinvested its earnings, it plans to pursue a modest dividend disbursement strategy post the issue. In this regard, we believe the company may maintain approximately 40% payout, which implies FY18/FY19 DY of ~6.3% (based on floor price). Our indicative fair value of PKR21/sh, offers 75% upside to floor price. We recommend subscribe up to strike price of PKR17.5/sh.



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    #4
    Rehan sh

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    thank you bro,I have read the mentioned above report, I am bitt shaky when I see accounts, and proceeds to be used for Material purchase/machines are under utilized .....as lay man how much upside you see.
    Note:Do your due diligence before making any investment decision.

    Thank You & Regards
    Rehan Sh

    #5
    Mansoor

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    View PostRehan sh, on 09 May 2017 - 11:53 PM, said:

    thank you bro,I have read the mentioned above report, I am bitt shaky when I see accounts, and proceeds to be used for Material purchase/machines are under utilized .....as lay man how much upside you see.

    I do not see much upside in it. But IPO stocks are mostly artificially moved up by some brokers, Lets see.
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    #6
    Rehan sh

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    thank you mansoor bro
    Note:Do your due diligence before making any investment decision.

    Thank You & Regards
    Rehan Sh






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