KARACHI, April 12: The Initial Public Offering (IPO) of International Steel Limited (ISL) which hit the stock market on Tuesday, received subscription to 81 million shares against 62 million shares on offer, sources familiar with the matter said.
The steel mill IPO was over-subscribed by 30 per cent on the first day of the three days at the book building stage.
Analysts said that the ISL was the first company to enter the equity market with an IPO after a gap of 12 months. The warm investor response, not only reflected the confidence on the worth of company fundamentals but also brought to the fore, the market thirst for more of worthwhile equity. Book building was to proceed on Wednesday and Thursday.
The ISL–a subsidiary of the already listed International Industries Limited (IIL) had unveiled the plan to offer 61.9m shares (14pc of capital) through book building to institutions and high-net worth individuals at a floor price of Rs12.90. Another 20.6m shares (4.7pc of capital) are to be allocated for pre-IPO foreign investors and 27.5m shares (6.3pc of capital) would be on offer for subscription to the general public. That would be at the strike price.
Topline Securities’ analyst Farhan Mahmood said that the 250,000 tons state of the art steel complex would cost Rs8.7 billion. The company projected sale at 100,000 tons of CRC (Cold Rolled Coils) and 150,000 tons of HDGC (Hot Dipped Galvanized Coils). It would tide over the supply deficit in the domestic market.
“With one of the lowest per capita steel consumption of 12kgs over the regional average of 190kgs, Pakistan steel market offers huge potential,” says the analyst. Moreover, the prevalent estimated supply shortfall of 400,000 and 300,000 tons of CRC and HDGC respectively, offered an assured market for company products. That was thought to be regardless of 220,000 tons capacity addition by Ayesha Steels, likely to come on stream in next few years.
Analysts reckoned that in addition to the stable demand, company sponsors’ long association with local steel market, would be helpful in marketing of the product of the subsidiary.
The upcoming company has focused on customised steel products, which provides an ability to charge a steep premium of $20-30 per ton over the international product prices. The icing on the cake was the 10pc duty protection on CRC and HDGC which would enhance company’s absolute margins by another $80-100 per ton assuming steel prices to hover around the current levels.
“Thus average gross margin on CRC and HDGC is expected to work out at $125 & 115 per ton,” wrote Farhan in his report released on Tuesday.
Interestingly, the rising steel prices bode well for ISL since higher steel prices, would eventually translate into bigger advantage in absolute terms, on account of duty protection.
As for valuations, the analysts said that various methodologies including price-to-earning (PE); price-to-book value (P/BV) and discounted cash flow (DCF), suggested a target price of Rs16.5 for the ISL stock.
“Due to the absence of an ideal comparison in local bourse, we have taken ISL’s parent company (IIL)–which has been in the steel business for 45 years– as a close proxy for peer analysis,” analyst observed.
Source: Dawn News
