Promoted by Kamleshbhai Patel, Mukeshbhai Pate and Vinodbhai Patel, Asian Granito India manufactures vitrified tiles. The company currently has an installed capacity of 14,000 square meters(sq mt) per day and is second largest domestic producer of vitrified tiles controlling 10.57% of the installed capacity to produce domestic vitrified tiles. Asian Granito’s subsidiary, Asian Tiles, manufactures ceramic floor tiles. It has a capacity of 7,000 sq mt per day.

To modernise and expand its existing vitrified plant and set up a wall tile unit, Asian Granito is coming out with an initial public offering (IPO). For the proposed wall-tile plant and for future expansion requirement, the company has purchased 167,565 sq mt of agricultural land (at total cost of Rs 1.07 crore), of which 99,780 sq mt have been acquired from promoters. The average cost of acquisition of land from outsiders works out to Rs 35 per sq mt, while from promoters Rs 83 per sq mt, higher by 141%.

Strengths

• 2,000 sq mt per day of vitrified-tile capacity is likely to come on stream from October 2007.This will increase the vitrified-tile capacity to 16,000 sq mt per day. Production of vitrified tiles will be 4.51 million sq mt in the year ending March 2007 (FY 2007) and projected to be 5.2 million sq mt in FY 2008.

• The wall-tile unit is likely to come on stream in January 2008. Production is projected to be 0.68 million sq mt in FY 2008, 2.89 million sq mt in FY 2009 and 3.06 million sq mt in FY 2010. Realisation of wall tiles is currently about Rs 183 per sq mt.

• From 1 July 2007, China has reduced the export subsidy for producer of vitrified tiles to 3%, from 8% earlier. This is likely to improve competitiveness of domestic vitrified manufacturers compared with importers of vitrified tiles who have received antidumping exemption: Nitco and Kajaria. Imports of vitrified tiles have increased from Rs 11.66 crore in FY 2004 to Rs 66.95 crore in FY 2006.

Weaknesses

• Entering into the less attractive wall-tile segment. The realisation in wall tile is less than vitrified tiles on account of presence of many large unorganised players. Also the market size of wall tiles is much smaller than vitrified tiles.

• Over the past few years, realisation in tiles has not shown any significant improvement.

• About 50% of the revenue is from institutional clients compared with 70% earlier. Increase in proportion of retail sale is likely to increase marketing cost and reduce average realisation as institutional clients generally buy high-end products.

Valuation

Consolidated FY 2007 EPS on post-issue equity workout to Rs 10.9. At the offer price band of Rs 85 – Rs 102, the P/E range works out to 7.8-9.3, respectively. Even after the 58% rise in price in the last nine trading session, Murudesh Ceramic (larger player compared with Asian Granito) is trading at 8.9 times its FY 2007 earning. TTM P/E of the ceramics tiles industry is 9.23.