RDB Rasayans is entering the capital market on 21^st September 2011 with a fresh issue of 45 lakh equity shares of Rs.10 each, in the price band of Rs. 72 to Rs. 79 per share. The issue, aiming to raise Rs. 32.4 crore to Rs. 35.6 crore, constitutes 25.4% of the company's post issue paid-up capital and closes on 23^rd September.

Kolkata based company manufactures packaging material such as PP tape, PP woven sacks, woven fabrics, industrial woven fabric, PP woven fabrics and PP woven bags. It also manufactures FIBC (flexible intermediate bulk container or jumbo bags) and various woven polymer based products like container liners, protective irrigation system, canal liners etc.

Company has manufacturing facility in West Bengal with installed capacity of 7,000 MT of which only 61% was utilized in FY11. The IPO funds will be utilized for capital expenditure worth Rs. 32.7 crore to enhance manufacturing capacity by 7,450 MTPA by establishing another unit.

The financial picture of the company is very poor, to say the least - with under Rs. 50 crore sales turnover and wafer-thin margins, due to high input costs. For FY11, company reported topline of Rs. 46 crore and earned net profit of just Rs. 1.8 crore, entailing 3.9% net margins. On equity of Rs. 13.21 crore (quite high given the scale of operations), annual EPS was Rs. 1.38. This leads to a PE multiple of 52 and 57 times, respectively on the lower and upper end of price band of Rs. 72 and Rs. 79 respectively. Clear day-light robbery!  

As of 31^st March 2011, company has net worth of Rs. 18 crore and debt of Rs. 12.5 crore. Promoter shareholding, currently at 87.59%, will decline to 65.34% post-issue. Company is seeking only BSE listing, probably as the listing on NSE involves compliance with more stringent conditions, which it is finding difficult to comply with.

The business also lacks any fundamental strength wherein top ten customers constituted 85% of FY11 income while top ten suppliers constitute 91% of total purchases for FY11 for the company. Another major risk is that the company, promoters, directors and group companies are trapped in innumerable number of litigations, aggregating to over Rs. 350 crore in estimated value, which is a shocking amount. Only a BRLM like Chartered Capital could dare to handle a public issue of such a company!

This sector has seen over 20 companies going public between 1995 to 2004 and unfortunately, half of them have vanished and half of them are now ruling at 50% of their issue price. A clear case of wealth destruction by the sector and promorters of those companies! This company will be one more addition to this list. As indicated by us, nowadays, BRLM and company  value issue at 5 to 6 times of its fair value. This has surpassed it and hence a case of robbery.

Issue is a clear avoid. By no stretch of imagination does the company deserve a post-listing market cap of Rs. 140 crore (at Rs. 79 per share). Fair value of the stock is seen at par i.e. Rs. 10 per share.