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Analysis:
Brokerages are bullish on the initial public offering of Credit Analysis and Research (CARE) and are advising investors to 'subscribe' to the issue. The company is entering the capital market with it IPO on Friday to raise between Rs 504 and Rs 540 crore. The company is offering 71,99,700 equity shares of face value Rs 10 each in the price band of Rs 700-750 per share.
VKS has a very high client concentration in terms of revenues. The top five clients contribute three-fourth of the total revenues, which we believe is a risk as the order books of the top capital goods companies have tumbled as per their March 2012 quarter numbers. Besides, if one looks at the IIP data, then the growth of the capital goods companies has remained negative in the second half of the last fiscal. As industrial growth declines, a direct impact would be felt on companies like VKS, and thus, we remain skeptical about its order book and the sustenance of its exponential growth. With regard to valuations, on the post diluted equity, the company is priced at the PE of 14x of its annualised estimated FY12 EPS (on the higher price band). This is very steep as compared to that of industry peers like Unity Infra at 3.5x and Pratibha Industries at around 5.5x. Hence, considering factors like a weak order book position that gives lower revenue visibility, the steep valuations and the large proportion of receivables, we recommend that investors avoid this IPO.