Shilpi Cable Has Many Disadvantages

Shilpi Cable - latest results

(in Cr.)
Sep-11
Jun-11
 
Revenue
69.37
70.08
--
Net Profit
4.67
4.77
--
EPS
1.45
1.48
--
Cash EPS
1.69
1.72
--
OPM %
18.66
16.36
--
NPM %
6.74
6.81
--

A mobile tower

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Shilpi Cable - Share Price Movement

 
 
 
Weekly H/L
10.2
9.05
Monthly H/L
14
9.05
52 Weeks H/L
84.65
9.05
 
( 8 Apr 11 )
( 20 Dec 11 )
Delivery / Var+ELM %
84.24
30.98
 
 
 

Shilpi Cable Has Many Disadvantages

share price movement of Shilpi Cable
share price movement of Shilpi Cable | Source

Shilpi Cable Has Many Disadvantages


One more poor debut in stock markets

Shilpi Cable Technologies has become one more company to make a poor debut in the stock markets. Its share price tumbled by as much as 30% on debut in the stock markets in April this year. The stock was listed in both BSE and NSE. In the NSE, the share price opened at Rs.78 and even went up to Rs.84.70 before closing at Rs.48.05 on debut. It touched a low of Rs.45.40 in the intra-day trading. The issue price of the share was Rs.69. Investors who had invested in the company’s shares burned their fingers on the first day itself. But now they have burned their hands also as the share price has plunged to an abysmal Rs.9.40 (BSE 22.12.11). Over nine crore shares were transacted on the first day in both BSE and NSE put together. In the BSE, the share price closed at Rs.47.60 on the debut day. Public share holding in Shilpi Cable remains at a low of 12.58%. Promoters have a 74.88% stake and FIIs 12.54% stake. Credo India Thematic Fund sold around three lakh shares on day one. There were six bulk deals struck on the first day involving 20.89 lakh shares.

Telecom sector is not doing well

Shilpi Cable is involved in supplying feeder cable assemblies that are made use of in mobile towers to telecom tower companies. It is present in both 3G and 2G sectors. Right now the telecom companies are not doing well and the telecom tower business is not witnessing much expansion. There is also an environmental opposition to installation of the telecom towers in the crowded residential areas because of the fear of radiation hazards. There is no wonder that the company’s share price has plunged to below Rs.10 in the stock markets as there is no investor interest in the company.

Dispute among the promoters led to temporary close down

Even before the company came out with a public issue, it had no enough track records and faced heavy competition from the established large companies operating in the sector. Shilpi Cable also has sizeable debt in its books. The company started operations in the year 2008 but in the very next month after commencement of business, the business was stopped because of a dispute among the promoters.
Again production commenced after some time, but Shilpi Cable sustained losses in the first two years of its operations.

Average quarterly results

For the quarter ended 30.09.11, the results are average compared to the quarter ended 30.06.11. Revenue has marginally dropped from Rs.70.08 crore to Rs.69.37 crore. Net profit has also marginally dropped from Rs.4.77 crore to Rs.4.67 crore. Operating profit margin increased from Rs.16.36 crore to Rs.18.66 crore. Net profit margin dropped slightly from 6.81% to 6.74%. The highest price recorded by the shares of the company in the last one year is at Rs.84 (BSE 08.04.11) and the lowest price is the present price of Rs.9.40 (BSE 22.12.11).

Demand was high at the time of IPO

At the time of the public issue, demand for the company’s products RF cables, low voltage power cables and accessories looked bright. This was because the demand for telecom towers was seen increasing with the launch of 3G services by the government. Many telecom tower companies like Reliance Infratel (50000 towers), Indus Towers (110000 towers) and other small tower companies wanted to expand their operations, being encouraged by the impending commencement of wireless broadband services.

Large players are better placed

There are high value components in a mobile tower. Some of them are the shelters, tower structures, air conditioner, battery banks, inverters and diesel generators. Shilpi Cable is not operating in any of this value added higher segments of a mobile tower. Even in the products the company is manufacturing, it faces competition from large established players like Andrew Telecommunications and Microequal Techno. Therefore there will always be pricing pressure. The large players have a superior business mix compared to Shilpi Cable and are in a position to withstand competition.

Weakening of Indian rupee has weakened Shilpi Cable also

Apart from competition, the weakening of Indian rupee against the dollar has weakened Shilpi Cable also. This is because Shilpi Cable imports nearly three fourths of its raw materials, chiefly LLDP, copper and HDPE. These raw materials are used for manufacturing the cables the company supplies to the mobile tower companies. In the last one year, copper prices have increased enormously by as much as 30% in the international commodities markets mainly due to large consumption by China. Shilpi Cable also has more than Rs.100 crore as debt. As interest rates have increased because of the RBI’s policy of increasing rates to combat inflation in the economy, interest costs for Shilpi Cable has also appreciated significantly, denting its profits. Shilpi Cable could have lessened its debt burden had it repaid at least a part of its debt out of the Rs.55 crore it collected through its IPO. But it missed the chance.

Do not invest

Investors should not enter into the Shilpi Cable counter even at the present low price because of the following reasons:

  • Shilpi Cable’s share price witnessed high volatility on the very day of listing in the stock exchanges
  • On the very first day, investors lost their money in the share counter
  • While bulk investors would have made profit in the counter at the beginning of the trading on the first day, other investors were left in the lurch, fending for themselves
  • Shilpi Cable faces acute competition from large established players
  • Shilpi Cable cannot increase the price for its products because of competition
  • Shilpi Cable’s ability to withstand business pressure is low
  • Weakening of the rupee has weakened the financial position of Shilpi Cable also as it depends on imported raw materials to the extent of three fourths of its total requirements
  • Price of the raw materials mainly copper has been rising in the commodities market because of Chinese demand
  • Shilpi Cable is not a player in the high value segment in the mobile towers business
  • Its debt is huge and it failed to utilize the proceeds of the public issue to at least party repay these loans

The share has no investor fancy

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