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Exxaro Tiles IPO opens for subscription. Should you consider it?

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Exxaro Tiles IPO, which opens today, comprises fresh issuance of shares worth Rs 134 crore and an offer for sale of shares worth Rs 27 crore.

Exxaro Tiles IPO opens for subscription. Should you consider it?
Vitrified tiles maker Exxaro Tiles plans to raise Rs 161 crore through an initial public offer (IPO) that opened for subscription on Wednesday. The Gujarat-based company has set a price band of Rs 118-120 apiece for the public offer.
On Tuesday, Exxaro Tiles raised Rs 23.68 crore from two anchor investors, ahead of the IPO, allocating 19,73,325 shares at Rs 120 apiece.
The IPO comprises fresh issuance of shares worth Rs 134 crore and an offer for sale of shares worth Rs 27 crore. At the upper end of the price band, bidding for one lot of 125 shares will cost investors Rs 15,000.
The IPO will close for subscription on August 6. Three other companies -- Windlas Biotech, Devyani International and Krsnaa Diagnostics -- are also launching their IPOs today.
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Here's what brokerages say about Exxaro Tiles' IPO:
Angel Broking
In terms of valuations, the post-issue FY2021 PE works out to be 35.2x at the upper end of the issue price band, which is low compared to peers Somany Ceramics (43.7x) and Kajaria Ceramics (52.7x), said Amarjeet Maurya, AVP - Mid Caps, Angel Broking.
Exxaro has had better revenue growth compared to its peers over the FY18-21 period, said Maurya, who recommends 'subscribing' to the issue saying its valuation is reasonable.
Religare Broking
The brokerage has a positive view on the company from a long-term perspective.
"Along with having a strong product portfolio and large dealer network, the company’s focus on innovation and quality products aided to gain a higher market share. Going forward, the company’s strategy is to enhance brand visibility, strengthen product portfolio, expand dealer network in India as well as globally," Religare Broking said in a note.
Besides, Exxaro plans to set up a gas station for internal gas consumption and optimise its power and fuel costs (which account for 29-30 percent of its
revenue). This will help the company reduce external dependency as
well as improve operating margins, according to the brokerage.
SMC Institutional Equities
The brokerage has a 'subscribe' rating on the IPO. The organised tiles industry has been gaining market share post GSP implementation and mid-sized companies have a higher growth potential going ahead, it said in a note.
Choice Broking
The brokerage has assigned an 'avoid' rating to the IPO.
"At Rs 120, the company is demanding a PE valuation of 35.3x (to its restated FY21 EPS of Rs 3.4). Considering the RoE of 5.6 percent, the demanded valuation seems to be highly stretched. There are already much better established peers in the listed space, which an investor can consider for investment," Choice said in a note.
The brokerage has highlighted the following risks and concerns:
--Subdued economic activities, especially in the real estate sector
--Unfavorable movements in raw material prices
--Working capital-intensive business
--Rise in interest rates
--Competition