Time Technoplast

Time Technoplast is entering the capital market on 18th May 2007 with an issue of 39.22 lakh equity shares of Rs.10 each in the band of Rs.290 to Rs.315 per share. The company is into manufacturing and sale of technology based polymer products serving the industrial and consumer packaging solutions, lifestyle products, auto components, healthcare products and infrastructure related products, with six production facilities located at six different locations. The group companies Shalimar Packaging Pvt. Ltd and Oxford Moulding Pvt. Ltd were merged with the company with effect from 01-04-05. The company further acquired 75% stake in Tainwala Polycontainers Ltd being 58.50 lakh shares at Rs.40 per share for Rs.23.40 crores. The company is engaged into manufacturing of extrusion blow moulded HMHDPE containers upto 250 litres capacity. All these acquisitions caused big financial burden on the company and debt of the company got raised from Rs.67.53 crores (on 31-03-05) to Rs.164.32 crores on 31-12-06. This has resulted in default in repayment of Rs.40 crores, short-term loan availed from IL&amp;FS Ltd for acquisition of Tainwala Polycontainers. The repayment of the same has been rescheduled by IL&amp;FS and is now being mobilized from the proposed IPO. The total fund requirement is estimated at Rs.146 crores (excluding issue expenses and general corporate purpose) against which the company is planning to mobilize Rs.179 crores, excluding internal accruals (of about Rs.35 crores annually) and considering issue at upper band of Rs.315 per share. This excess of Rs.33 crores is probably to tide over hard-pressed short term debt. The company is now setting up new projects for manufacturing disposable medical devices at Himachal Pradesh an integrated injection moulding facility at Silvassa, with total outlay of about Rs.50 crores. Investment of about Rs.40 crores is earmarked for overseas projects. The company is further acquiring 49% shares of Mauser Holding Asia Pvt. Ltd from its promoters for Rs.19.20 crores. Hence, the company seems to be facing financial crunch due to too many expansions and acquisitions. For FY '06 the company posted a total income of Rs.263 crores with PAT of Rs.24.53 crores. On fully diluted equity of Rs.20.93 crores EPS works out to Rs.11.72. For 9 months ending 31-12-06 topline was at Rs.256 crores and PAT of Rs.26.90 crores resulting into an annualized EPS of Rs.17.14. If we take the issue price at the upper band of Rs.315, the shares are being issued at historic P/E multiple of 18 plus which is very high when compared with the industry and peers. The discounting to this sector is quite low and due to multiple products being produced by the company (some are with very low discounting like HMHDPE barrels) the issue price definitely looks quite stretched and steep. Though the company had placed 6 lakh shares at Rs.325 per share on 16-03-07 to private equity investors, which is likely to get adjusted, in the event of the minimum threshold being price is reduced, still it doesn't infuse much confidence. The operations of the company shall continue to remain a low margin business with highly working capital intensive and increase in topline, post commencement of new projects, are likely to put further pressure on the operating profit margins and working capital requirements. Also, sharp increase in margins in FY '06 and FY '07 over its previous year looks like presenting a rosy picture to lure investors. Given this background, though the investors may make money in short run, it may not be too rewarding in the long run.

Time Technoplast

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