Shankara Pipes IPO Review

It’s official now.
Shankara Pipes IPO which was expected to hit the primary markets has been assigned a rating of 2 on a 5 point scale. The IPO rating agency CRISIL has given the ration of 2 out the maximum5, and this rating is no good indicator for any IPO. What this rating means is that the fundamentals of the company are not that strong and they fall below average.

The Shankara Pipes IPO is planned to raise between Rs 790 and 910 million. A total of 6,1 15,000 equity shares are expected to be sold through the IPO book building process.

The company has good presence in South India. However, CRISIL’s rating of 2/5 is not a good sign for investors for this company. It is in the business of Steel Pipe and Tube distribution.The management has demonstrated a good understanding of the Electronically Resistance Welded segment within steel pipe and tube distribution, both in terms of supply arrangements with manufacturers and distribution set up.

Not only that, the company maintains its own outlets. As per the news quoted in Economic times, the company's strategy of owning 16 out of the 35 new retail outlets, to be set up in 2008-09, will depress return investment in the short run compared to the competing strategies based on leased model. The grading also reflects the potential conflict of interest that could arise from a promoter-owned entity, which carries out transportation activity for Shankara Pipes and another promoter company. Although more than 60 per cent of Shankara Cargo movers revenues are from Shankara Pipes, the related party transaction constituted only 8.35 per cent of Shankara Pipes's freight cost in 2006-07.

Promoted by Sukumar Srinivas, Shankara Pipes has emerged as a significant south based player. For the year ended March 2007, the company reported a net profit of Rs 87 million on a turnover of Rs 5020.8 million vis-a-vis a net profit of Rs 69.2 million on a turnover of Rs 3462.6 million in 2005-06.

Further details about IPO offerings are awaited. Lets see how this Shankara Pipes IPO performs.

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