Sejal Architectural Glass, a flagship company of Sejal Group is engaged in the business of processing glass. The company also has a trading division wherein it trades in various in-house brands and other manufacturers’ products like tiles, sanitaryware, mirrors, glass, etc. for home and commercial interiors.  The company has three distinct SBU’s i.e. Processing, Retail and Float glass manufacturing.


Issue Details & Update

Price Band   : Rs. 105 – Rs. 115
Issue Price   :  Rs. 115
Issue Size   : Rs. 1057 million
Issue Open / Close Date :  09-06-2008 to 12-06-2008
Issue Listing Date  :  01.07.2008
Lead Manager  : Saffron Capital Advisors Private Limited.

Listing Price   :  Rs. 110
Current Market Price :  Rs. 38.45
52 Week H/L              :  Rs. 139.8 / Rs. 18.25
Latest Market Cap  :  Rs. 1076 million


The company entered the capital markets to fund its backward integration by setting up a new plant for production of float glass and to meet its general corporate expenses.

The total expected cost for the expansion plan is close to Rs 4800 million of which lions share (Rs 3180 million) would be funded through debt and the balance would be funded through internal accruals and IPO Proceeds.  The company had thus raised Rs 1057.30 million from its IPO proceeds.


Promise vs Performance table  :   Amount in Rs Million

• As on December 31, 2008, the company had invested Rs 80 million in mutual funds. The balance was utilized as per the objects of the issue.
  
  
• Clear demarcation of funds available from the IPO proceeds and that of funds from debt and internal accruals has not been given by the company in its releases. 
  
  
• It has invested in the existing pre processing and processing facilities at Silvassa and as a backward integration measure, the company now plans to set up a project for manufacturing float glass at Bharuch with an installed capacity of 2,00,750 MT per annum which would not only enhance the quality of glass used for its value added products and brands like Kool Glass, Armor Glass, Fort Glass, Tone Glass, etc but also provide an edge over its competitors. Its float glass facility was earlier scheduled to be completed by FY09, but now,will be completed in FY10. 
  
  
• Recently, the company ventured into retailing and has opened a 30,000-square feet showroom to sell high-end glass articles used in house interiors.
  
  
• As part of its strategic initiative, the company has introduced a fixed deposit scheme by inviting deposits from the public, shareholders and employees of the company. It would offer non-cumulative and cumulative fixed deposit schemes for a period of 1, 2 and 3 years bearing an interest of 11.5%, 12% and 12% per annum respectively.  The  money thus mobilized is proposed to be utilized for meeting the working capital requirements of the company. 
  
  
• Though the strategy may meet the short-term working capital requirements of the company , the move could add to the already high amount of debt in its books. The company’s ability to meeting its debt obligation and in time needs to be closely monitored.

• Overall, on the back of economic slowdown, the company witnessed a decline of 18% in Net Sales q-o-q, thus standing at Rs 155.57 million for the quarter ended Dec 2008. Consequently, Net Profits declined substantially by 45% to stand at Rs. 12.04 million.
  
  
• Interest to Net Sales increased by over 100 bps q-o-q.
  

SWOT


Key Positives

• Sejal offers a wide range of glass products and has established state of art pre-processing (cutting, edging, drilling and washing) and processing (lamination, insulation and tempering) facilities. Recently, the company ventured into retailing and has opened a 30,000-square feet showroom to sell high-end glass articles used in house interiors. The benefits of the overall diversification and backward integration are likely to commence  soon which could enhance its financial performance. 
  
  
• Strategic location of its existing and proposed plant to facilitate efficient logistics management as well as cost savings and Sejal’s gas based manufacturing facilities have major advantage over its competitors leading to significant cost benefit (most of its peers use oil as fuel). It is thus isolated from the sharp increase in the prices of oil which could have adversely impacted the bottom-line and can even sell its products at a competitive price thereby enhance its market share due to lower fuel cost as compared to its peers.
  
  
• The demand for Indian flat (float/sheet) glass has hitherto grown at close to 12% per annum. The market potential India for float glass is grossly under leveraged as the per capita consumption is only 0.55 kg which is 1/7th of China, 1/10th of Thailand and 1/28th of global consumption on a per capita basis. With at least a marginal revival on the cards, demand from construction activity across sectors (Real Estate, Hospitality, SEZ) and growth in the automobile sector may be less impacted and the company may be better placed to capitalize on the demand of the architectural glass industry.

Key Concerns

• High client and product concentration risk. 
  
  
• Fierce competition from players having reputed brand names such as Saint Gobain, Asahi India, Gujarat Guardian to name a few, who are also the suppliers of raw-material (tinted glass) for the company remains a concern. 
  
  
• Servicing of a significantly large amount of debt required to fund its expansion plan will also to put to test the ability of the company to stabilize its future operations and service its debt remains effectively.

theIPOguru.com Recommendation : BUY at Declines


Though integration would lead to higher margins going forward, servicing of debt may negate its impact in the early years. Nevertheless, an increase in profitability due to increase in sales volume cannot be ruled out.

Moreover the stock now trades significantly below the issue price of Rs 115. Patient investors with a slightly higher risk appetite who would bet on the ability of the management to expand its operations and effectively service the debt can consider adding the stock on declines as once the debt is repaid there can be a huge expansion in the profit margins and thereby, profitability.