Gujarat-based Exxaro Tiles with a fresh issue of 11,186,000 shares and an offer of sale (OFS) of 2,238,000 shares, allotted 1,973,325 shares to two domestic funds at the upper end of the price band, which is fixed at Rs 118-120. Reportedly, the unlisted stock was getting a premium of Rs 20 in the grey market. Experts have varied views of the issue. While some find the P/E valuation of 35.3 times (on restated FY21 EPS of Rs 3.4) demanding, some say it’s reasonable.

“The return on equity (RoE), the demanded valuation looks to be highly stretched. There are already many better-established peers in the listed space, which an investor can consider for investment. Thus we are assigning an ‘avoid’ rating to the issue,” Economic Times quoted Choice Broking as saying

The tiles business in the country is a scattered one with large companies holding dominant positions. Exxaro Tiles mostly deals in the manufacturing and marketing of vitrified tiles that are used for flooring solutions.

It has two facilities at Vadodara and Talod spread over 1.5 lakh square meters. According to media reports, its business is divided into two product categories. One is double-charge vitrified tiles and the other is glazed vitrified.

Claiming to have a wide presence in Tier I cities, the company’s products are sold via a network of dealers who are 2,000 in numbers.

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Compared with Somany Ceramics’ 43.7 times and Kajaria Ceramics’ 52.7 times, Exxaro Tiles’ valuation looks low Amarjeet Maurya, AVP for Midcaps at Angel Broking, said.

“Exxaro Tiles has a better revenue growth track record compared with its peers (over FY18-21). We believe the valuation is reasonable. We recommend a ‘subscribe’ rating on the issue,” it said.

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For FY21, the company reported a 6% rise in sales at Rs 255 crore. Its profit jumped from 36% to Rs 15.2 crore during the year. According to the company, it has the highest operating margins before depreciation and amortisation (Ebidta margin) of 19%.

Its return of equity at 11.9% is lesser than Kajaria’s 16.5%. The Gujarat-based firm’s total borrowings at the end of FY21 stand at Rs 161 crore.