IPO:INNOVENTIVE INDUSTRIES LIMITED

IPO opens on 26th April and closes on 29th April

• Price band-Rs.117 to 120.
• Standard Chartered Private Equity has taken 10.14% stake in the company. Pre IPO placement was done to them at a price of Rs. 117 per share.
• Expected yield 8% to 12% on listing(*depend on prevailing market conditions)

Our recommendation : Buy

INNOVENTIVE INDUSTRIES LIMITED

A multi-product engineering company

COMPANY & BUSINESS OVERVIEW

INNOVENTIVE INDUSTRIES LIMITED (IIL) is diversified multiproduct engineering company started by six first generation entrepreneurs lead by Mr. Chandu Chavan. IIL manufactures & sells Oil well drilling couplings, membrane panel strips, precision steel tubes, pup joints, Auto components & other products. Supported by its R&D focus and domain expertise, the company has developed new technology and products with enhanced properties at a lower cost.

• Company has grown CAGR of 53% in topline and 47% in bottom-line over last 7 years.

• Innovation driven growth strategies have helped us grow from Rs. 15 Cr to Rs. 453 cr (9 months ended on 31st December 2010) in short period of 7 years with little equity capital.

• 18% Exports as of 2010. Products are well accepted in quality conscious German market.

• Substantial competitive advantage in manufacturing DOM tubes due to internally designed patentapplied pilgering process leading to significant cost savings.

• Caters high growth & diversified sectors- Transportation (45%) – Includes entire auto segment

from 2 wheeler, passenger cars, heavy vehicles, farm equipment’s, construction equipment etc;

energy(30%) and general eng.(25%). It operates in complementary industries and as such provides a well-balanced exposure to industry downturns.

• Long term relationships with established names as customers in domestic and export markets.

• Substantial financial benefits from the Mega Project Status under PSI Scheme 2007, 75% of Capex made till March 2012 will be reimbursed by Govt of Maharashtra by way VAT refund till FY 2016.

Current Eligible Capex is Rs. 262.46 Cr.

• Standard Chartered Private Equity has taken 10.14% stake in the company. Pre IPO placement was done to them at a price of Rs. 117 per share.

KEY PRODUCTS

CEW / DOM Precision Tubes	OCTG Products	Membrane Strips	Other Products
OCTG Products Membrane Strips Other Products APPLICATIONS Auto, Energy Sector, General Engineering, sold in Domestic and Global Markets Customers – Salem Steel, LLC (North America), Volvo Eicher, Lear Auto	APPLICATIONS Couplings and PUP joints for OIL wells which are mainly exported Customers – Arcelor Mittal, Allied Engineer., Welded Tube (Canada), Apolo Tubulars, UZTEL	APPLICATIONS Used in Boilers and is an IMPORT SUBSTITUTE	Auto parts, welded parts, and handles used in 2 and 3 wheelers
INNOVATION Developed the most innovative Pilgering Process for DOM tubes. Patent Filed	NICHE SECTOR Caters the OCTG sector which requires established track record, licenses and top quality	KEY CUSTOMERS BHEL, Thermax, ALSTOM, Cethar Vessel	KEY CUSTOMERS BAJAJ, VOLVO EICHER

INNOVATION FOCUS

IIL, through its R&D focus, has successfully adopted the cold pilgering process to manufacture CEW tubes without the use of the conventional draw bench process. The adoption of cold pilgering technology has resulted in significant cost savings -energy cost savings of up to 80%, reduction in wastage of steel by 7% and lower usage of chemicals. The findings are audited and certified by IIT Mumbai. Innoventive has filed a patent application for this technology in manufacturing CEW tubes from welded tubes using Pilgering process.

With the cost saving on account of pilgering process the company has a significant advantage in

pricing its products in competitive global markets.

MARKETS & CUSTOMERS

• Customers include industry leaders such as Bharat Heavy Electricals Limited, Thermax Limited,

Alstom Projects Limited, Bajaj Auto Limited.

• Export to North America, Europe, South America, Kuwait & Middle East

BOARD OF DIRECTORS

Chandu Chavan	Chairman, Promoter	Experience of over 18 years in the industry
Ravindra Katre	Managing Director,Promoter	Oversees raw material procurement and sheet division of Innoventive
Sanjay Waghulade	Whole Time Director,Promoter	Oversees production, tooling & related areas including project set up.
Ramprasad Joshi	Independent Director	Has worked with Aerospace Engineering Department in IIT Mumbai
Yashpaul Gupta	Independent Director	Over 28 years of banking experience and retired as Field General Manager
Pradeep	Tupe Independent Director	Coordinator at MIT Group, Secretary at AIMA
Rajendra Jagdale	Independent Director	Director General of Science and Technology Department established by Government of India
Wlliam Sean Sovak	Nominee Director (Kavos Capital)	MD & co Founder of Lighthouse Advisors India Pvt Ltd

KEY DETAILS

Key Financials - Shareholding Pattern -

RsinCr	FY08	FY09	FY10	FY11*(9months)
SALES	323.10	362.00	421.50	453.20
EBIDTA	37.20	70.20	115.10	123.00
PAT	8.00	14.10	34.30	36.90

* Results are for period ending 9 months (December 2010)

Promoters & Employees 70.28%

Kavos Capital Ltd &

Standard Chartered Pvt.

Equity

29.72%

ISSUE DETAILS

Offering Size	Upto INR 219.58 Cr (after Pre IPO placement of INR 30.42 Cr)
Use of Proceeds	• Capacity expansion of the manufacturing facility at Pimple Jagtap - Rs. 163 Cr • Repayment of debt to the tune of Rs. 50 Cr • Balance for General corporate purposes
Key Dates	Bid opens: 26th April`2011 Bid closes: 29th April 2011, QIB Closes on 28th April 2011, Retail & Non-institutional closes on 29th April`2011
FUTURE STRATEGIES
Innovative Products & Cost Efficient Processes	Develop technology based innovative products to achieve twin objectives of cost competitiveness and improved quality Increase addressable market by applications where seamless tubes, bars & nonferrous tubes can be replaced Designing new products like hydraulic cylinders, bearing spacers, diesel fuel injection tubes, Bi-Metal tubes, drag linkages, etc.
Expand Customer Base	Expand into geographies like North America, Europe, Middle East and Latin America to capture outsourced manufacturing Target segments railways, farm equipment, material handling, marine and infrastructure
Capacity Expansion	Further expand the CEW/DOM capacity to 76,701 MT by 2012
Pursue Selective Acquisitions & Investments	Continue making selective acquisitions leading to new opportunities in related businesses to expand geographic presence, product offerings & technological expertise
Value Creation for All Stakeholders	Create value for all the stakeholders in the company. Retain and nurture talent in the group – created an ESOP Trust for the employees(4.7% stake)

GROWTH DRIVERS • Increasing Investments in oil & gas & infrastructure sectors will drive the demand for precision

tubes, couplings

• Expected growth in the passenger car / automotive segments would result in increased

consumption of precision tubes and auto components

• Discovery of large reserves of natural gas in K G Basin will fuel the growth of gas pipelines

• Government initiatives on capacity addition in power sector to result in increased demand for

precision tubes, membrane strips

• Continued investments in railway up-gradation are expected to spur greater purchase of precision

tubes

KEY BUSINESS RISKS &

MITGATION

• Appreciation of Rupee vis-à-vis USD - Exports contribute significant portion of the gross revenue.

Appreciation of rupee versus USD may adversely impact company’s performance. However,

Company hedges the forex risk immediately on confirmation of Export Orders.

• Rising employee cost – The employee cost in manufacturing sector are lagging behind other

growth industries such as IT and Finance. It is expected that employee cost will grow substantially

to catch up with other industries. This is already factored in our Business Model.

For more details on your E-mail about the Company kindly send your ids on info@integrity.org.in or SMS on 9890966600