20 Microns

20 Microns is entering the capital market on 8^th September 08, with a public issue of 43.51 lakh equity shares of Rs.10 each, in the band of Rs.50 to 55 per share. Of this, fresh issue is of 16.75 lakh shares, while offer for sale is of 26.76 lakh shares.

The company is into mining and mineral business with its plants located at five places in Gujarat, Rajasthan and Tamil Nadu. FY 08 topline of the company was at Rs.108 crores, which includes trading turnover of Rs.38 crores. Net profit for the year was at Rs.4.59 crores, which has resulted into an EPS of Rs.3.69.

Since the fresh issue is of 16.75 lakh shares only, even at the upper band of R.55, it would be able to mobilize Rs.9.20 crores only. This would be used to finance the ongoing expansion at five places, estimated to have an outlay of Rs.19.20 crores, including issue expenses and general corporate purposes. Rs.10 crores is being mobilized as a term loan from IDBI.

Financial health of the company as at 31.03-08 has not been very healthy. Inspite of gross block of Rs.76 crores as at 31-03-08, the turnover of the company for FY 08 was just Rs.69 crores. Debt of the company was at Rs.46.51 crores on a net worth of Rs.28.20 crores, resulting in a Debt equity ratio of 1.65 to 1. Even expansion is being carried out on an estimated debt equity of over 1:1. Post issue, equity of the company, will rise to Rs.14.12 crores with promoters stake of 43% only.

Ashapura Minechem, a Rs.1,500 crore company with tiny equity base of Rs.16 crores is ruling at a PE of close to 7. There are many such mining companies ruling at a PE multiple of 5 to 8 times, though they may not be strictly comparable, product-wise with the company.

Present issue, even if considered at the lower band of Rs.50, is being made at a PE ratio in double digit, which is definitely very high. The company would largely be falling in small cap category, for which perception is very low.

In view of this, investment is not advised in the issue at any levels.