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Rajshree Polypack IPO Analysis

Review By Finception on Sep 7, 2018

Rajshree Polypack Limited IPO

Rajshree Polypack is in the business of manufacturing and selling plastic products. They began operation in 2004 with a small manufacturing facility in Daman and have since scaled and set up a total of three manufacturing facilities with an annual capacity of over 10000 MT. The company makes plastic sheets, cups, containers and sells it to the likes of dairy manufacturers and beverage companies.

 The company says its decision to set up their facility in Daman was strategic in nature.

"By operating our manufacturing facilities out of Daman, our proximity to north India and south India is equally coverable. Within a radius of 1,200 kms. from Daman, we are able to serve a substantial length of our country. Additionally, the cost of power at Daman is relatively low compared to other states in India, which helps to keep our production costs down"

But that could have easily backfired after Maharashtra banned the manufacturing and distribution of certain plastic products in the state in March 2018. Because of its close proximity to the state, one would be inclined to think that this decision would have a material impact on the company. Fortunately for Rajshree Polypack, revenue from Maharashtra contributes to only about 2% of its total revenue. But this should serve as a reminder about the implication of a nationwide ban on certain plastic products.

So how are they doing as a business?

  1. 1. Rajshree has shown some remarkable strength in terms of its revenue growth. The top line has grown from 30 crores in 2013 to 112 crores in 2018 i.e. 30 % CAGR since
  2. The operating margin although is not as consistent as revenue growth, it still looksreasonable. Operating margins indicate the profit the company can make on every rupee of sale before paying interest or tax. The fluctuations may be attributed to the changes in prices of raw materials, which is indirectly linked to oil prices. So, any rise in oil prices will have a defining impact on Rajshree’s profits
  3. The company has been successful in growing its bottom line as well, up to 8 times i.e. from 1.9 crores in FY 13 to a profit of 9.3 crores in FY 18

FY

FY 18

FY 17

FY 16

FY 15

FY 14

FY 13

Revenue (Cr)

112.5

95.1

95.0

64.8

39.8

29.9

PAT (Cr)

9.31

8.77

7.94

0.72

(0.03)

1.91

Operating Margin (%)

13.8

17.3

16.8

7.7

2.8

8.4

How well are they using their Current capacity?

The capacity utilization tells another story. The company continues to add capacity and generate enough demand to sell the additional products they keep making every year, a good sign.

Particulars

Extrusion (in MT/Year)

Thermoforming (in MT/year)

Printing (Pieces in Lakhs/year)

Sleeving (Pieces in Lakhs/year)

FY

18

17

16

18

17

16

18

17

16

18

17

16

Installed Capacity

10200

8750

7200

4320

3933

3348

5148

4537

3700

900

763

450

Production

8450

7412

6643

3351

3001

2614

4028

3837

3511

800

534

261

% Capacity Utilization

82.8

84.7

92.3

77.6

76.32

78.1

78.3

84.6

95.1

88.8

70.0

57.9

Why IPO?

The company wants to raise money to set up its fourth manufacturing facility at Daman which will then be used to make more rigid plastic sheets and thermoformed packaging products (cups, containers etc.) More capacity incoming it seems. The Manufacturing facility is expected to be operational in 2019.

Particulars

Amount Raised through IPO (Cr)

Setting up Manufacturing Facility

36.24

General Corporate Purpose

NA

Total

NA

Does the company bear significant Debt?

The company’s operations rely on big capital investments. So, it's reasonable to assume the company will have to rely on debt to fund their operations. But the company’s borrowings have steadily decreased over the years. In comparison to the profits, their interest expense hasn’t increased disproportionately. And since the company plans to fund its new manufacturing facility through proceeds from the IPO. The company’s debt levels ought to remain under control.

FY

FY 18

FY 17

FY 16

FY 15

FY 14

Total Borrowings (Cr)

14.85

20.91

26.25

27.66

23.91

Finance cost (Cr)

2.4

2.91

3.96

3.9

1.37

Interest Coverage Ratio

6.45

6

4

1

1

Is Export the next big thing?

Currently, 90% of the company’s revenue comes from domestic sales while 10% of its revenue is attributed to exporting products to the likes ofChina, Saudi Arabia etc. The company has said

"We intend to expand our customer base to US and UK and increase our footprint in the Middle East. We feel there is a large potential/market for us to explore and supply our products. We will continue to explore all such options which help in increasing our customer base and diversify over different geographies and markets"

Particulars

FY 18

FY 17

Domestic Sales

90.1 %

92.1 %

Export Sales (China)

6.3 %

6.5 %

Export Sales (others)

3.6%

1.4%

Total Exports

9.9 %

7.9 %

Point of Interest:

As of today (pre-issue), 27% of the total outstanding equity shares are allocated to a Swiss company called Wifag Polytype Holding AG, which provides plastic manufacturing equipment. The company maintains that this investment has helped them with access to technology and knowledge base but we are not quite sure why a plastic manufacturer from Switzerland holds equity in Rajshree. We also observed related party transactions with Wifag in 2017 amounting to 2.5 Cr. Wifag has been holding these shares since 2012.

Can Rajshree be the next growth story?

Based on the annualized earnings the asking price of Rs 120 translates to a PE of about 15 post issue. The company could turn out to be a growth story if it continues growing its revenue by installing new manufacturing facilities, bagging export orders and improving its operating margin vis-a-vis. But what if it doesn’t? What If something goes wrong? What if there is a nationwide ban on plastic. What if manufacturers are forced to comply with harsh restrictions and all this new capacity becomes a pointless endeavour. We will let you decide.

We here at Finception, wish the company all the best in its future endeavour.

The review has been compiled by Pawan Kumar - NISM Certified and cofounder, Finception.


Conclusion / Investment Strategy

Based on the annualized earnings the asking price of Rs 120 translates to a PE of about 15 post issue. The company could turn out to be a growth story if it continues growing its revenue by installing new manufacturing facilities, bagging export orders and improving its operating margin vis-a-vis.

Review By Finception on Sep 7, 2018

Review Author

Dilip Davda, a freelance journalist

Finception

Finception is a startup dedicated to simplifying stocks through compelling storytelling. Finception aggregates, analyses and filters information from multiple sources and creates compelling narratives about publicly listed companies in an easy to understand language without financial jargons. The startup is the brainchild of 3 IIM Ahmedabad alumnus and they are currently based out of Ahmedabad.

Email: support@finception.in

Web: https://finception.in/

More Rajshree Polypack Limited IPO Views / Analysis / Recommendations ...

The Rajshree Polypack 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 Rajshree Polypack IPO worth investing. The Rajshree Polypack IPO Note sets the IPO expectations in systematic way which tells you if Rajshree Polypack IPO good to buy (good or bad / yes or no). The IPO Forecast tells you weather to invest in Rajshree Polypack IPO by providing IPO recommendations i.e. subscribe, avoid and neutral.


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