Exxaro Tiles - IPO Note

Exxaro is into the manufacture and marketing of vitrified tiles, which are extensively used as an alternative to marble flooring in homes and also in offices. They are easier to maintain. Exxaro is into the manufacture of double-charged vitrified tiles and glazed vitrified tiles made from clay, quartz, and feldspar. The company currently offers over 1000 designs across 6 standard sizes. 

Domestically, Exxaro supplies its tiles to residential, commercial and educational institutions while globally, Exxaro tiles are exported to Poland, Bosnia, the US and other countries. Currently, Exxaro has 2 manufacturing facilities located at Padra and Talod in the state of Gujarat with a total installed capacity to manufacture 1.32 crore square metres annually. 

Key terms of the IPO issue of Exxaro Tiles
 

_{Data Source: IPO Filings}

The fresh funds raised will be used for the following purposes.
•    Repayment of borrowings. Currently, Exxaro has debt to the tune Rs.75 crore of long-term debt and equivalent amount of short-term debt. The reduction of debt will be useful in reducing the interest cost of servicing and the solvency risk of business.

•    To meet the working capital needs of the business, which are quite substantial in the business where payments tend to get back-ended especially in large contracts or where the realty industry is going through a slowdown, as was evident till recently.

A quick look at the Financials of Exxaro Tiles

Here is a quick look at the financials of Exxaro Tiles, and we have only captured key financial parameters of relevance to the Exxaro Tiles IPO for the last 3 fiscal years.
 

_{Data Source: RHP}

Investment Perspective for Exxaro Tiles IPO

Exxaro does offer a wide choice of vitrified tiles for customers and markets its products through more than 2,000 registered dealers. It is also one of the key manufacturers in the niche glazed tiles manufacturing segment.
a)    The tiles segment is highly competitive with established listed names in the market as well as a huge unorganized segment that is active in manufacturing tiles. Exxaro is likely to face competition from both sides.

b)    The impact of the pandemic has been limited on the stock and typically it operates in the non-cyclical business which has a strong OEM market and also a replacement market. Normally, these needs can be postponed but cannot be done away with.

c)    Valuation may be slightly on the higher side. In post-IPO terms, the issue is priced at around 37X earnings of FY21. This is almost at par with the listed names and does not leave too much room for listing gains or short-run gains on the stock.

Also Check: List of Upcoming IPOs in August 2021

While the valuations do look fully priced at the current earnings levels of FY21, the earnings have been growing at 25% compounded on an annual basis. Hence, if the steady growth is maintained, the stock may offer a good proposition in the medium to long term. Investors need to be patient with the IPO.