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Plastene India Limited IPO Review (Avoid)

Fiscal 2012-13 has begun on a sluggish note as far as primary market is concerned. The first IPO of the fiscal TBZ got scrapped through with 1.15 times subscription, but the mega IPO of Samvadhana Motherson (SMFL) failed to see the light of the day with just 38 per cent subscription on the last day and stood withdrawn due to poor response. Amidst such murky scenario, Plastene India is daring to come out with its IPO.

Plastene India is a flagship company of Champalal Group from Gandhinagar and engaged in plastic packaging materials. The company manufactures a variety of transport and storage containers (Jumbo bags/FIBCs) for both dry and liquid (bulk) goods, woven sack product (used in Chemicals, fertilizers, cement, urea, minerals, resin, polymers and rubber industry), variety of laminates (solvent less / solvent based) structures for food and non-food applications and wide range of high tenacity Polypropylene Multifilament yarn - dope dyed. It has four manufacturing facilities in India located at Gandhidham, Rajpur and Rakanpur in Gujrat. The company exports to around 30 countries deriving close to 49% sales from export market.

The company plans to expand its manufacturing capacity to 64,000 MTPA at an approximate cost of Rs. 53 crore and also setting up a new venture to manufacture 5,000 MTPA block bottom valve bags in Nani Chirai, Kutch at an approximate cost of Rs. 25 crore.To part finance this plans along with general corpus fund raising, the company is issuing  92,55,290 Equity Shares of Rs 10 each (including 55290 shares reserved for employees) for cash in the Price Band of Rs 81 to Rs 84 via book building route. The issue opens on 09.05.12 and will close on 15.05.12. Minimum application is to be made for 75 shares and in multiples thereafter. With this float the company plans to raise Rs. Rs. 74.97 - 77.74 crore based on lower- upper price band. ICRA has assigned IPO Grade 3 to this IPO indicating at average fundamentals of the company. Motilal Oswal Investment Advisor is the sole BRLM and Karvy Computershare is the registrar to the issue. Post issue, shares will be listed on BSE and NSE. The issue consists of 25.89 per cent dilution of the post IPO equity.

On consolidated basis the company posted a net profit of Rs. 21.00 crore on a total turnover of Rs. 520.10 crore translating in to an EPS of Rs. 7.92. For the first ten months of the current fiscal ended on 31.01.12 it has earned net profit of Rs. 10.95 crore on a total turnover of Rs. 379.35 crore translating into an annualized EPS of Rs. 4.96 on old equity. If these earnings are attributed to the enhanced equity post IPO, then it comes to Rs. 5.87 and Rs. 3.68 respectively for last two periods and based on this the asking price is at around 14 and 22 PE respectively, which appears to be costly compared to its close peer which are trading around 3 to 7 PE.

Conclusion / Investment Strategy

Considering the current market status and higher asking price, it is better to stay away from this issue.

Review By Dilip Davda on May 7, 2012

The Plastene IPO Analysis helps you to understand about the company, offer detail, valuation, capital structure and financial performance. Our SEBI registered IPO Analysts tells you if Plastene IPO worth investing. The Plastene IPO Note sets the IPO expectations in systematic way which tells you if Plastene IPO good to buy (good or bad / yes or no). The IPO Forecast tells you weather to invest in Plastene IPO by providing IPO recommendations i.e. subscribe, avoid and neutral.

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).

About Dilip Davda

Dilip Davda, a freelance journalist

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.


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