Care assigns IPO grade 2 to AVON Weighing Systems
Care has come out with research report on AVON Weighing Systems (AWSL). It has assigned ‘IPO Grade 2’ to the company’s IPO. The company proposes an IPO of 98,36,400 equity shares of face value Rs10 each, amounting to Rs 9.84 crore.
Care report on AVON Weighing Systems IPO
CARE has assigned ‘CARE IPO Grade 2’ to the proposed IPO (initial public offer) of AVON Weighing Systems Limited (AWSL). CARE IPO Grade 2 indicates below average fundamentals.
AWSL proposes an IPO of 98,36,400 equity shares, of face value of Rs.10 each, amounting to Rs.9.84 crore.
The grading factors in good track record of the promoters in trading operations, long relationship with Tanita Corporation and A&D Company Ltd. (A&D), stable profitability margins with growing operations and favourable prospects of the digital and mechanical weighing scales. However, the grading is constrained by AWSL’s small size of operations, high contribution of export earnings, high working capital requirements resulting into high overall gearing, excessive reliance on Tanita Corporation for setting up new manufacturing plant and lack of promoter’s experience in manufacturing.
AWSL, engaged in trading of mechanical and digital weighing systems, procures the products from A&D and Tanita. The product range of the company caters to wide range of industries such as - pharmaceuticals, chemicals, gems & jewellery, healthcare, retail etc. Apart from trading, AWSL also provides consultancy services, software development services, after sales services and assembly work, as per client’s requirement. As on date, exports constitute majority portion of the total revenue of the company. However, AWSL enjoys a natural hedge against currency fluctuations due to imports.
Development of software and technological innovations in manufacturing activities has changed the face of the weighing balance industry in India. Post economic development, electronic balances have become the norm in India. This industry is moving towards developing integrated weighing solutions, instead of standalone weighing balances.
In order to participate in the government tenders, which provide high volumes but require bidding companies to have their manufacturing facilities in India, and to improve margins, AWSL proposes to enter into manufacturing of mechanical and digital weighing system, with technical help from Tanita. The company also proposes to open four new showrooms and additional office space in Mumbai. The total cost of the project is Rs.17.30 crore to be funded from the mix of promoters equity (Rs.4.36 crore), IPO (Rs.9.84 crore), long-term debt (Rs.2.60 crore) and internal accruals (Rs.0.50 crore).
On the back of export order of Rs 97 crore, received during FY06, AWSL posted compounded growth of about 69% and 90% in the total income and PBILDT, respectively, for last four years. During FY07, the company borrowed Rs.4.80 crore towards working capital which resulted into an increase of about 280%, in the interest expense. As a result of working capital intensive nature of the operations, the overall gearing, for the last four years, has shown an increasing trend. During FY07, the equity share capital increased by Rs 1.45 crore, as a result of issuance of bonus shares and promoter contribution of Rs 0.47 crore towards new project.
