Avoid Gallantt Ispat’s IPO

The company faces competition from existing players and is in losses till date. It lays out 44 internal risk factors in its prospectus. Avoid!

Price: Rs50

Bid lot: 125 equity shares and in multiples thereof

No of shares: 81,00,000 equity shares

Issue size: Rs4,050 lakh

Issue duration: 22 September 2010 - 24 September 2010

Listing: BSE and NSE


Pre-Issue promoter and promoter group holding:

Post-issue details:

Public issue of 81,00,000 equity shares of Rs10 each for cash at a price of Rs50 per equity share including a share premium of Rs40 per equity share aggregating to Rs4,050 lakh comprising of 14,00,000 equity shares of promoter contribution aggregating to Rs700 lakh and net offer to the public of 67,00,000 equity shares aggregating to Rs3,350 lakh. The issue would constitute 30.26% of the fully post issue paid up capital of the company and the net offer to the public would constitute 25.03% of the fully diluted post-issue paid up capital of the company. Equity shares outstanding prior to the Issue are 1,86,66,297. Equity shares outstanding after the issue are 2,67,66,297.

Business model

Gallantt Ispat Ltd is engaged in manufacturing sponge iron, mild steel billets, re-rolled products (TMT bars) and wheat flour products. The objects of the issue are

1) To part finance the integrated steel plant consisting of the following modules at Sahjanwa, Gorakhpur, Uttar Pradesh

  •  Sponge iron plant with a capacity of 99,000 MTPA
  •  Mild steel billets with a capacity of 1,62,380 MTPA
  •  Re-rolled products with a capacity of 1,67,400 MTPA
  • Captive power plant with a generating capacity of 16MW

2) To part finance the Flour Mill Sahjanwa, Gorakhpur, Uttar Pradesh with a capacity of 1,80,000 MTPA.

3) Listing of securities on stock exchanges

Financial Snapshot:

The net worth of the company, as per restated financial statements as at 31 March 2010 is Rs9,655.76 lakh. It was Rs10,126.07 lakh as of 31 March 2009.

The profit and loss statement shows net loss after extraordinary items of Rs449.56 lakh as of 31 March 2010. It was Rs12.60 lakh as of 31 March 2009.

Diluted EPS: Year ended 31 March 2010 (2.41); year ended 31 March 2009 (0.10).

Price/Earning (P/E) ratio: The P/E ratio cannot be determined as the EPS for the period ending 31 March 2010 is negative. The P/E ratio for the industry is in the range of 4.4 to 96.6.

Book value of the equity shares of the company as of 31 March 2010 is Rs51.83 per equity share.

Analysts' notes on financials:

Rating agency FITCH has awarded grade 2/5 to the IPO indicating 'Below Average' fundamentals. The reports say the grading reflects the project delays and stabilisation issues faced by the company in its capex plan to set up an integrated steel and power plant. Although the company completed its capex for flourmill, mild steel (MS) billet plant, rolling and sponge iron plant in August 2010, there remain operational and stabilisation issues.

The company is yet to receive clearance for some licences and yet to place order for some machinery.

It is a poor quality IPO. The fundamentals of the company do not deserve any premium. It appears that the issue is being pushed in before 30th September, to escape the new SEBI rule, which makes mandatory for companies to incorporate the June quarter results, if the issue is planned after 30th September. Better to avoid the issue.

IPO Positives

a) Interest free loan.
b) Land on actual cost and concessional rates of registration.
c) Entry Tax exemption on plant & machinery, spare parts and capital goods.
d) Exemption of mandi tax of 2% on purchases of wheat.
e) Location advantage: The location of the site will be advantageous to the company in transportation of raw material as well as finished products.

IPO concerns

Internal Risk Factors: There are 44 internal risk factors specified in the prospectus. Here are the top six:

1. There are litigations initiated by and pending against promoters/group entities.

2. The company has taken land on lease from the Gorakhpur Industrial Development Authority (GIDA) on certain terms and conditions. In the event of any breach of the terms and conditions by the company, GIDA has a right to terminate the lease, by giving a notice thereof and to resume possession of the entire plot leased or part there of.

3. Company has incurred losses of Rs12.60 lakh and Rs449.56 lakh for the year ended 31 March 2009 and 31 March 2010. Inability to generate profits in the future would adversely affect business and financial performance.

4. Cash flow has been negative for some years. In the event that future cash flows continue to be negative it may hamper its ability to meet financial obligations.

5. Registration of logo/tradename "GALLANTT Building Tomorrow" is pending before the Trademark Registry, Kolkata, West Bengal. If any of the company's applications for registration are not accepted or if any order against it is passed in the oppositions filed, the company may lose the statutory protection available to it under the Trademarks Act, 1999 for such trademarks.  

6. The company is entering into a new line of business and expanding its capacity without firm commitments/orders.


The company's major competitors for are TMT Bars, KVS TMT, Kamadhenu Steel, Barnala Steels, Tata Steel, etc. The market in which the company operates for wheat flour products is also unorganised and fragmented with many small and medium-sized companies selling in the open market.

Concluding note

From the company facts and the competition it faces, both traders and investors need to be cautious about participation in this issue.



k a prasanna

7 years ago

Poor quality IPO. The fundamentals of the company do not deserve any premium. It appears that the issue is being pushed in before Sept -30, to escape the new SEBI rule, which makes mandatory for companies to incorporate the June quarter results, if the issue is planned after 30 Sept. CLEAR NO TO THE ISSUE. FIRST CHOICE IPO

India to raise outsourcing issue in US trade meet

Washington: Indian industrialists would take up the outsourcing issue during the Indo-US Private Sector Advisory Group (PSAG) meeting here on Tuesday, reports PTI quoting Federation of Indian Chamber of Commerce and Industry (Ficci) president Rajan Bharati Mittal.

"Tomorrow (Tuesday), we will take in the PSAG (Private Sector Advisory Group) the outsourcing issue," Mr Mittal said ahead of the trade advisory group meeting on the sidelines of the Trade Policy Forum meeting, co-chaired by the Union commerce and industry minister Anand Sharma and his American counterpart Ron Kirk.

Mr Sharma arrived in Washington from Chicago on Monday evening and soon thereafter had a meeting with the Indian CEOs, here to attend the PSAG meeting.

"I have already told the minister (Mr Sharma) that as an industry body we are raising the issue of outsourcing," Mr Mittal said.

He added, "On the one hand they (Americans) are talking about Indo-US partnership in innovation and technology and allowing all services; on the other they are restricting peoples services. That's something which is not acceptable."

"This is a serious issue for India. This is an important issue for us and we will take this us seriously," he said.

When asked what was the response from the United States on the issues raised by India with regard to outsourcing and visa fee hike, he said it was a "cold response".

Notably, Mr Sharma is yet to receive the response to the letter he wrote to Mr Kirk on hike of categories of H-1B and L1 visas.

Besides outsourcing, the PSAG would be discussing three important issues — logistics and urban development; urban infrastructure and technology and services.

"We have put a paper from Indian side on urban infrastructure and logistics. They have put a paper on technology innovation and services," Mr Mittal said.



shadi katyal

7 years ago

It is indeed an amazement that we in India donot understand the economic conditions prevailing in USA and unemployment being around 10% but we are so insensitive that we must raise the question of outsourcing. why do we make fool of ourselves and yet call yourself mature businessmen.
are we so insecure that we show our immaturity to others.
SA will listen and feel sorry for India and keep in mind this kind of insult for future.
Grow up and feel the pinch of others

Cantabil Retail India IPO: It’s your choice

The issue is reasonably priced even though the ICRA grading for this IPO is low. This grading indicates below-average fundamentals. The company also operates in a highly fragmented market. Make your choice!


Price: Rs127-Rs135 per equity share
Bid lot: 50 equity shares and in multiples thereof
No of shares on offer at Rs127 per share: 82.68 lakh equity shares
No of shares on offer at Rs135 per share: 77.78 lakh equity shares
Issue size: Rs10,500 lakh
Issue duration: 22 September 2010 - 27 September 2010
Listing: BSE and NSE


Pre-issue promoter and promoter group holding: Cantabil Retail India Limited (CRIL) is promoted by Vijay Bansal who has over 20 years of experience in the garment and garment accessories industry. In addition to Vijay Bansal, there are two more promoter directors, Deepak Bansal (son of Vijay Bansal) and Swati Gupta (daughter of Vijay Bansal).

Currently, the promoters have a 99.99% shareholding in the company, which will come down to 50.84% - 52.3% post IPO.

Post-issue details:

At the lower price band of Rs127 per equity share of Rs10 face value, the PE works out to 14.5 times the EPS of Rs8.7 for FY2010 on post-IPO equity. At the upper band of Rs135, PE works out to 15.0. Listed companies in the readymade garments sector, Koutons Retail, Provogue and Kewal Kiran Clothing, have PE of 11.3, 26.1 and 15.2 times EPS of FY 2010; while the sector PE works out to be 13.7 times.

Post-issue promoters' stake at Rs127 per share: 50.84%
Post-issue promoters' stake at Rs135 per share: 52.3%

Business model

Incorporated in 2000, Cantabil Retail India Ltd is in the business of designing, manufacturing, branding and retailing of apparel under the brand names of 'Cantabil' and 'La Fanso'. It has a network of 381 exclusive retail outlets spread across India.

The 'Cantabil' brand with 206 exclusive retail outlets offers formal wear, party wear, casuals & ultracasual clothing for men, women and children in the middle to high income group. The 'La Fanso' brand caters to the men's segment in the lower to middle income group and focuses on casual, ultra-casual and formal wear. They also retail various accessories like ties, belts, socks, caps and handkerchiefs under their brands.

The company has three in-house manufacturing/finishing units and four warehouses located in Delhi. It also has three third-party dedicated manufacturing units. Cantabil Retail's stores are situated at Delhi, Mumbai, Kolkata, Bengaluru, Hyderabad, Pune, Jaipur, Ahemdabad, Baroda, Lucknow, Kanpur, Patna, Ranchi, Dehradun, Meerut, Ludhiana, Jalandhar, Udaipur, Agra, Ghaziabad and Gurgaon.

Objects of the issue:

The objects of the Issue are to raise funds for:
1. Establishment of new integrated manufacturing facility (Rs31 crore)
2. Expansion of exclusive brand outlets (Rs25 crore)
3. Additional working capital (Rs30 crore)
4. Repayment of debt (Rs20 crore)
5. General corporate purposes

Financial Snapshot:


   *(All figures in Rs crore)

The net worth of the company as of 31 March 2010 is Rs2,957 lakh.

The cash & cash equivalents at the end of 31 March 2010 are Rs68.3 lakh.

Analysts' notes on financials:

ICRA has assigned an 'IPO Grade 2' to CRIL's IPO. This means as per ICRA, the company has 'Below Average Fundamentals'. ICRA assigns IPO grading on a scale of 5 to 1, with Grade 5 indicating 'Strong Fundamentals' and Grade 1 indicating 'Poor Fundamentals'.

IPO positives

The company has an established discount brand in the domestic apparel market with a diversified product portfolio for men, women and children. It has a wide network of exclusive retail outlets across metros, Tier-I and Tier-II cities in India. The proposed manufacturing facility will reduce dependence on third-party manufacturers and improve profitability. CRIL has a healthy financial profile with steady growth and improvement in operating profitability in the past. It has experienced promoters with around two decades of experience in the garment industry. There is also favourable demand outlook for organised retailing in the country.

IPO concerns

The company's aggressive expansion plans may put pressure on the operating profitability as the company might adopt pricing strategy to gain market share in newer regions.

Increase in fixed costs such as rentals will have an impact on operating profitability; high working capital intensity coupled with rapid expansion in the past had resulted in negative fund flow from operations. This is likely to continue over the medium term as the company plans to scale up quickly by opening new stores and adding new product lines. Successful expansion of the retail network would be dependent on the ability to scale up and effectively manage the supply chain, especially given the high inventory requirements.

The market is highly fragmented and competitive, dominated by the unorganised sector.

Rising yarn and fabric prices could put pressure on the profitability of the company given the fragmented nature of the industry and vulnerability of retail sales to economic trends.

Concluding notes

At Rs 127-Rs135, the issue is reasonably priced. Post IPO PE between 14.5 and 15 is close to PE of competitors in the readymade garments sector as well as sector PE of 13.7.



k a prasanna

7 years ago

The promoters are experienced in garment business. Established discount brand in the domestic apparel market with a diversified product portfolio for men, women and kids. Wide network of exclusive retail outlets across metros, Tier I and Tier II cities.

At Rs 127 -135, the issue is reasonably priced. The EPS for FY 10, on the post issue capital (Rs 14.32cr) comes to Rs 10/-. At the upper band, the company is demanding a valuation of 13x. This compares well with the peers in the sector, like Kewal Kiran Clothing (14PE), Koutans Retail (12PE) and Provogue (25PE). APPLY. FIRST CHOICE IPO.

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