New York Life Investment Management India Fund (FVCI) II Llc will make a part-exit from its three-year-old investment in Commercial Engineers & Body Builders Co Ltd (Cebbco), that is all set to enter the capital market, with an estimated 4x returns. The company, that is into manufacturing vehicle bodies for commercial vehicles, refurbishment of wagons and manufacturing of components for wagons, coaches and locomotives for Indian Railways, has fixed a price band of Rs 125-127 per share for its public offer.

At the upper end of the price band, the company shall be valued at around Rs 712 crore ($158 million) and New York Life Investment Management India Fund’s holding will get diluted to 15.2% from 23.3% at present. The private equity fund had invested Rs 30 crore in the manufacturing company three years ago with an average investment cost of Rs 30 per share.

Cebbco intends to use the issue proceeds from the fresh sale of shares for capital expenditure for a railway project besides prepayment of identified loan facilities.

The company is promoted by Jabalpur-based Gupta family led by Kailash Gupta and Ajay Gupta (son-in-law of Kailash Gupta). The group business is largely associated as collection and recovery agents besides dealerships for vehicles made by Tata Motors (the country’s largest commercial vehicle maker) in Madhya Pradesh and other part of states adjoining central India.

The promoters are also selling a small portion of their 76.5% holding to net around Rs 3.4 crore and their combined ownership will whittle down to around 58% post issue.

For the nine months to end December’09, Cebbco had total income of Rs 111 crore with net profit of around Rs 10.6 crore. If we annualise the earnings then at the upper end of the price band the company is asking for a valuation in terms of price-earnings multiple of as high as 51 on FY’10 earnings.

Either the firm is projecting a significant jump in profits for the current year or it is being ambitious. It could well be looking to ride the strong investor sentiment that has also pushed the benchmark market indices just around 5% short of its all time high.


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