Should one subscribe to Furniture Business – Timbor House?

May 30, 2011   ·   0 Comments

Incorporated in year 2000, Timbor Home Ltd is an India based manufacturer and retailer of Italian style modular kitchen components, door frames, home furniture and accessories. Company markets its products under brand names Timbor Cucine, Timbor Doors Timbor Home and IKI Kitchens.

www.stockssavvy.comTimbor has 3 manufacturing units in India, 2 of them are located in Ahmedabad and 1 in Anand district in Gujrat. Company market its product though more than 80 exclusive franchise stores in India.

Issue Detail:

»»  Issue Open: May 30, 2011 – Jun 02, 2011
»»  Issue Type: 100% Book Built Issue IPO
»»  Issue Size: 3,690,000 Equity Shares of Rs. 10
»»  Issue Size: Rs. 19.93 – 23.25 Crore
»»  Face Value: Rs. 10 Per Equity Share
»»  Issue Price: Rs. 54 – Rs. 63 Per Equity Share
»»  Market Lot: 100 Shares
»»  Minimum Order Quantity: 100 Shares
»»   At: BSE, NSE

CRISIL Rating: Graded 1/5 for the IPO indicating below average fundamentals

Shareholding Pattern of Timbor house:

Pre Issue Post Issue
Promoters 63.26 % 47 %
Public & Other 36.74 % 53 %
Total 100 % 100 %

Objects of the Issue:

The objects of the issue are:

1. Purchase of Machinery;
2. Establishment of new stores across India;
3. Additional working capital requirements;
4. Public Issue Expenses;
5. General Corporate Purpose;
6. To list shares of the company.

Timbor House Financials:

For FY10, its sales stood at Rs. 51 crore while profit after tax (PAT) was mere Rs. 1.8 crore, indicating net margins of 3.5%. During 9mFY11, sales were Rs. 55 crore and profit before tax (PBT) Rs. 3.1 crore. The company has not made a provision for taxes for 9mFY11 indicating misleading financials in its offer document as it has stated the same amount for both PBT and PAT of Rs. 3.1 crore, confusing investors. On applying the maximum tax rate i.e the bracket under which the company falls in, PAT for 9mFY11 works out to about Rs. 2 crore, leading to 3.6% net margin and nine monthly EPS of less than Rs. 2. As on 31-12-10, company’s equity stands at Rs. 11.07 crore while its networth is Rs. 22 crore. Current debt outstanding is Rs. 31 crore leading to a high debt-equity ratio of 1.4:1.

Timbor House Reviews: At upper band of Rs. 63 per share, company is expecting a market cap of Rs. 93 crore on listing and an enterprise value of Rs. 123 crore, which is very aggressive by all means and parameters, giving that the company is relatively a new entrant in the highly competitive ready-made furniture space and operates on thin margins. PE multiple of 26 times based on expected FY11 EPS of around Rs. 2is beyond any fundamental justification!

Verdict: Long list of reasons why the Stock should n’t be even purchased at half the price at what it is offered

a)    Weak Management – Net margin of 3.5 % in a Business is either making up of topline or due to bad Management skills.

b)   High Debt Company

c)    Highly Competitive Market

d)   Weak Financials

e) No Growth Trajectory visible – Company is going to open only 2 more new outlets in coming year & rest all the money is going for clearing bad debts.

Company should be ignored by Investors as well as Traders. Though the IPO should get subscribed due to small issue size by HNI’s. Traders should strictly keep away as every chance of Operator play in these kind of small Issues.

Rajesh Singla

Rajesh is the founder & CEO of Stockssavvy, Stocks analyst,financial advisor by choice,software engineer by fate,biker,gamer,cricket lover n enthusiastic person. He believes in doing things not just to get by but to get Ahead...

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