GEMINI ENGI FAB - FORGET IT

Gemini Engi Fab is entering the capital market on 3rd February 2009 with a public issue of 55 lakh equity shares of Rs.10 each, in the price band of Rs.75 to Rs.80 per share.
Gemini Engi-Fab has been in the business of manufacturing and salvaging of process equipment for well over a decade now.

The company fabricates heat exchangers, tower and column internals, reactors and vessels for a fairly diversified user industry base.

It plans to use the proceeds of the public offer to expand its operation and set up a manufacturing workshop in Umbergaon, Gujarat.
With a gross block of just Rs.7 crores and an annual topline of close to Rs.25 crores, the company is setting up a new plant of Rs.50 crores. To finance this, Rs.10 crore of Term loan has been sanctioned by Barclays Bank, which will get disbursed only after successful completion of IPO. The Bank had also kept call option after 3 months from first disbursal, which is very risky for a term loan facility.
The share is issued in the band of Rs.75 – Rs.80, which implies a PE ratio of close to 12 times even at the lower band.
Not only is this at a premium to the market, it also compares poorly with pure-play capital goods and engineering companies, which are currently available at lower valuations in the secondary market.
But what argues strongly against investing in the IPO is the pricing. This Rs 21-crore company has been valued at about 10-11 times its annualised FY09 per share earnings (post-offer equity) in the given price band, failing to price in the many business risks.

Much larger companies today suffer lower multiples owing to uncertainties on order flows, higher debt incidence or increasing pressure on working capital; even the Sensex-30 or Nifty-50 basket of stocks are available at lower valuations.
So why invest in Gemini IPO when you can get Frontline Blue Chips at a PE of 4-5???



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