PLASTENE INDIA
Plastene India is entering the primary market on 9th May 2012, with a fresh issue of Rs 92.55 lakh equity shares of Rs. 10 each, in the price band of Rs. 81 to Rs. 84 per share. The company aims to mobilise Rs. 78 crore to Rs. 75 crore at the upper and lower end of the price bands, respectively. The issue, representing 25.89% of the post-issue share capital of the company, closes on 15th May.
Ahmedabad-based plastics packaging manufacturer, Plastene India has 6 manufacturing units, all in Gujarat, with an installed capacity of 56,200 MTPA for Flexible Intermediate Bulk Containers (FIBC), woven sacks, flexible packaging and woven fabric. The company aims to finance project expansion which will increase installed capacity to 69,000 MTPA by FY13-end, at investment of Rs. 77.4 crore.
For financial year ended 31st March 2011, on a consolidated basis, company reported sales of Rs. 484 crore, with PAT of Rs. 21 crore, resulting in net margin of 4.3% and EPS of Rs. 8.66. But its financial performance has deteriorated significantly during ten months ended 31st January 2012, wherein sales declined to Rs. 382 crore, while net profit dropped to just Rs. 11 crore, with net margin contracting drastically to just 2.9%. EPS for 10m FY12 fell to a paltry Rs. 4.34! Part-culprit being the ballooning interest burden of Rs. 21 crore, for the first 10 months of FY12, up from Rs. 19 crore in FY11. Thus, company financials show a very grim picture.
Company’s net worth, on consolidated basis, as on 31st January 2012, stood at Rs. 119 crore, as against total debt of Rs. 196 crore, resulting in debt-equity ratio of 1.6:1, as of that date. Since the company undertook a pre-IPO placement in April 2012, from a bunch of individuals, worth Rs. 11.2 crore, its current equity stands at Rs. 26.49 crore.
As its EPS for the most recent period (10 M of FY12) has fallen drastically to Rs. 4.34, from Rs. 8.66 in fiscal 2011, it is not expected to report EPS of over Rs. 6 for FY12, which translates into a PE multiple of 13.5x and 14x at the lower and upper price bands, respectively, which is grossly expensive. Peer comparison can be made only with Flexituff International and Karur K.C.P.Packaging, as both these companies have annual turnover in the range of Rs. 500 crore, similar to Plastene, while other listed peers are much bigger or smaller in size.
Flexituff International is listed on the bourses since October 2011, when it had raised about Rs. 70 crore through fresh issue at Rs. 155 per share, during which, PE investor Clearwater Capital had part exited the company. The company’s shareholding pattern is quite discomforting, as also highlighted then during its IPO by us (Refer to our analysis - https://www.sptulsian.com/article/59607). As of 31st March 2012, promoter holding is 30.1%, while 18 shareholders are holding about 56%, with 394 retail shareholders holding a meager 0.52%. Hence, shares are concentrated in the hands of few shareholders, due to which, current share price is artificially jacked up and manipulated. On the other hand, Karur KCP is a micro-cap company with a market cap of Rs. 24 crore and PE multiple of 2.5 times.
On a fair value basis, company deserves a PE of not more than 5 times, resulting in a fair value for the stock of Rs. 30 per share. Thus, on what basis has the company along with the BRLM priced the issue? What wisdom prevails on the ‘advisors’ to price such a weak issue so aggressively? Will the BRLM buy the shares of this company at the offer price and hold it in their own portfolio? Just to earn some fees, an organization should not hold double standards! If not, atleast the withdrawal of Samvardhana Motherson’s Rs. 1,665 crore IPO should have dented their confidence a bit.
Since the past 15 years, there have been over 50 companies from the same sector have raised money from public, of which most have vanished / disappeared from both the bourses as well as from investors’ memory, while the handful surviving ones are ruling at pathetic valuations.
Post-listing, the script will be full of speculative activity and operator play. Its Gujarat connection only increases our confidence in saying so. Expect this stock to be included in our list of ‘Danger Stocks’ next month, when it gets listed!
Thus, poor financial performance, cut-throat competitive nature of the industry and gross over-valuation, make this issue very expensive and a clear avoid.
Do not apply!