Angel recommends to 'Avoid' Indosolar IPO

MUMBAI: Angel Broking has recommended investors to ‘Avoid’ the initial public offering of Indosolar. According to the brokerage the issue is highly valued as compared to global peers on P/BV basis.

“In its initial year of operations (FY2010), the company incurred losses of over Rs 66 crore on sales of ~ Rs113 crore. Total capacity, as on date, is 160MW. Annual production for FY2011 is expected to be ~ 90-100MW translating into sales revenues of ~Rs.600cr. Despite having low capacity utilisation, Indosolar plans to add a third line of 100MW capacity at a capital cost of over Rs 337 crore.

We believe that though the robust order book of ~ Rs 1012 crore provides revenue visibility in the medium term, there is uncertainty on EBIDTA and profitability margins embedded in the current order backlog.

Given the volatile global demand for PV products and the company's limited operating history, ascribing a valuation multiple to Indosolar seems challenging at this point of time. P/BV seems to be the most conservative tool on which companies like Indosolar can be valued vis-a-vis its global peers.

At the lower price band of Rs29/share, the implied P/BV would be ~ 1.9x FY2011E compared to the average P/BV of 1.0x for its global peers. On a EV/Sales basis, Indosolar is projected to trade at ~ 2.5x FY2011 estimates compared to its global peers who trade at ~ 1.1x CY2010 estimates. Hence, we recommend an Avoid on the IPO,” the report said.