CRISIL has assigned a CRISIL IPO Grade "2/5" (pronounced "two on five") to the proposed initial public offering of Shankara Pipes India Limited (SPIL). This grade indicates that the fundamentals of the issue are below average, relative to other listed equity securities in India. However, this grade is not an opinion on whether the issue price is appropriate in relation to the issue fundamentals. The grade is not a recommendation to buy / sell or hold the graded instrument, the graded instrument's future market price, or its suitability for a particular investor.

The grade reflects SPIL's ability to grow to be a Rs 5 billion steel pipe and tube distribution company, having a strong foothold in South India. The management has demonstrated a good understanding of the Electronically Resistance Welded (ERW) segment within steel pipe and tube distribution, both in terms of supply arrangements with manufacturers and distribution set up. Over the last few years, however, SPIL has seen a sharp increase in its working capital requirement, leading to the decision of re-modeling its business strategy by entering retail distribution and launching an e-portal. SPIL's ability to carry forward the expertise of its old business model into these new areas remains to be seen. In addition, the company's strategy of owning 16 out of the 35 new retail outlets, to be set up in 2008-09, will depress return on investment in the short run as compared to the competing strategies based on leased model. The grading also reflects the potential conflict of interest that could arise

from a promoter-owned entity, which carries out transportation activity for SPIL and another promoter company. Although more than 60 per cent of Shankara Cargo movers (SCM) revenues are from SPIL, the related party transaction constituted only 8.35 per cent of SPIL's freight cost in 2006-07.

About the company and the issue
SPIL, registered as a private limited company in October 1995, was converted into a public limited company in August 2007. Promoted by Mr Sukumar Srinivas, SPIL has emerged as a significant south based player (92 per cent of its revenues in 2006-07 are from south). For the year ended March 2007, the company reported a net profit of Rs 87 million on a turnover of Rs 5020.8 million vis-à-vis a net profit of Rs 69.2 million on a turnover of Rs 3462.6 million in 2005-06. SPIL, which began its retail foray in 2006-07 with 12 outlets, registered a turnover of Rs 380 million and an EBDITA margin of 10.0 per cent in 2006-07. SPIL aims to raise between Rs 790 and 910 million through its proposed public issue of 6,1 15,000 equity shares.

About CRISIL IPO Grading
CRISIL IPO (Initial Public Offering) Grading is an opinion on the fundamentals of the graded issue that reflects CRISIL's independence and expertise. This opinion is expressed as a relative assessment in relation to other listed equity securities in India. The assessment is based on a grading exercise carried out by industry specialists from CRISIL Research. A CRISIL IPO Grade 5/5 indicates strong fundamentals and a CRISIL IPO Grade 1/5 indicates poor fundamentals. CRISIL IPO Grading reflects its assessment of the graded company's equity fundamentals as distinct from an assessment of debt fundamentals. A CRISIL IPO Grade should not be construed to mean a comment on the price of the graded security nor is it a recommendation to invest or not to invest in the graded security.

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