WE Financial Services Limited.

In our today’s morning briefing we would discuss the upcoming Initial Public Offering (IPO) of Amreli Steels Limited along with recommendations.

About the Company

The company was incorporated in 1972 and is owned by Akberali family which has more than 60 years’ experience in steel and allied business. The company is one of the largest manufacturers of Steel Reinforcement Bars in Pakistan and is situated in the industrial hub of Karachi.

The IPO

The company has decided to go public with a purpose to expand its capacity of steel melting to 350 thousand tons per year and re-rolling mills capacity to 480 thousand tons per year. The company is offering its 25% of the paid-up capital – 74.25 million ordinary shares through IPO.

This IPO would be completed in two phases i.e. book building and offering to general public. Out of total 74.25 million to be offered, 55.5 million shares – 74.75% of the offering would be offered through book building, which will take place on 7th and 8th October’2015 at a floor price of Rs24/share. The remaining 18.75 million shares – 25.25% of the offering would be offered to the general public from 27th to 29th October’2015 at a price that will be determined through book building.

The Business

Amreli Steels operates with a re-rolling mill having a capacity of 180 thousand tons per annum and a billet manufacturing plant with a capacity of 200 thousand tons per annum.

The iron bars of the company are available in different sizes and grades. The company has strong dealership network from Sindh to Punjab and is the major supplier to most of infrastructure projects. Availability of 132 KVA dedicated grid station is an added advantage to the company due to uninterrupted power supply.

Outlook

With a floor price of Rs 24/share, the stock is offering an annualized P/E multiple of 5.2x on FY16 earnings which is far less from market PE of 9x. We believe that the IPO would be a successful one and investors would get handsome benefit from it.