Advanced Drainage Systems - Can This IPO Make Money For Your Portfolio?

Advanced Drainage Systems WMS is the second largest IPO this week. 14.5 million shares expect to price between $17 and $19 through Barclays and Deutsche Bank, to raise $275 million in proceeds.

The company’s business focuses on manufacturing corrugated plastic pipes used in construction and infrastructure projects.  Its pipes provide higher quality and more affordable water and drainage solutions compared to traditional alternatives.

With 48 manufacturing facilities and 19 distribution centers located throughout the United States, the company believes it’s structured to serve the needs of customers anywhere within its market.  The term, “market,” is defined by prospectus as a 200 mile radius encompassing the 100 largest metropolitan areas by population.

Major customers include national distributors and retailers.  Distributor relationships include Ferguson, HD Supply, and WinWholesale.  Major retailers include Home Depot HD, Lowe’s LOW, Ace Hardware, Menards, and Do it Best.

Into the future, the company’s growth strategy includes increasing sales, expanding product offerings, and geographic growth.  According to a recent filing, “Outside of the Unite States, we believe thermoplastic corrugated pipe represents a small part of the overall market.”

The company has experienced some financial struggles in recent years.  For the 2012 fiscal year, ending March 31^st, the company realized net income of $29.1 million.  For fiscal 2014, the company realized a net loss of $3.4 million.  

During that same time period, sales remained relatively flat, gross profit increased, yet the company’s net income declined to the point of losing money.  For 2013, the company’s net income was $19.5 million.  Selling, general, and administration expenses rose $16.4 million in 2014, accounting for 70 percent of $23 million bottom line decline. 

Proceeds will be used to repay at least $82.9 million in outstanding debt.

Look for Advanced Drainage Systems to open for trading this Friday, July 25.

Disclosure: The author holds no positions in the mentioned securities at the time of this writing.