Wednesday, July 14, 2010

IPO ANALYSIS -MIDFIELD INDUSTRIES LIMITED - LOOSELY PACKED – AVOID





The Hyderabad based packaging consumable manufacturer is entering the capital market on 19-07-10, with public issue of 45, 00,000 equity shares of Rs 10 FV in the price band of Rs 126-133 through book building process. Atherstone Capital Markets are the sole BRLM. The issue will close on 21-07-10.

M MADHU MOHAN REDDY AND MRS. M SUPRAJA are the promoters of the company.

BUSINESS

Midfield Industries Limited (MIL) is one of the organized players in packaging industry catering to the demand for Industrial packaging consumables in India. Midfield provides packaging consumables like high tensile steel strapping in various dimensions and strengths, Seals for different applications, Collated Nails & Corner boards being used for general and the end of line packaging of goods by varied industries. The company also provides comprehensive end to end packaging solutions to customers at their locations which enable them to focus on their core products and competencies.

OBJECTS OF THE ISSUE: (Total cost appx. Rs 60cr)


  • Expansion of existing manufacturing facility at Hyderabad, by setting up PET
             Strap, Stretch Films, PP Strapping, Collated nails – nails making machine,

  • Setting up new facility for manufacture of VCI Paper at Hyderabad.

  • Expansion at existing manufacturing facility at Mumbai, by setting up Angle
             Board, Collated Nails Seals and Heat Treatment Plant.

  • Expansion at existing manufacturing facility at Roorkee, by setting up Angle
             Board and Collated Nails and Seals.

  • Setting up new facility for manufacturing High Tensile Steel Strapping and seals.
            
  • Augmenting Long Term Working Capital Requirement


FINANCIALS:

Net Sales of MIL has increased from Rs.45.54 Cr in FY06 to Rs.90.51 Cr in FY10. MIL derives approximately 70% -75% of its revenues from the sale of Steel Strapping; Trading in VCI paper, polyester strapping and Stretch film contributes another 5% while the rest of the revenue comes from products such as Angle boards, seals and collated nails. Net sales have been growing at a CAGR of 17% between FY06 and FY10. The company earned a net profit of Rs 8.14cr on Rs 8.32 share capital giving an EPS of Rs 9.77.





RISKS/MATTERS OF CONCERN

1. IPO GRADE -2 by BRICK WORKS. The grading is constrained by competitive nature of the industry, volatility in the raw material prices, low pricing power, weak second line of management and long working capital cycle. 

2. High working capital intensive with average receivable in the range of 155 – 207 days for past 3 years. Both the suppliers of raw material and its clients are relatively large companies leaving MIL with little bargaining power.

3. Joint Venture with M/s Centaur Equipos de Flejado of Spain to setup a Company with the object of setting up a Steel Strapping manufacturing facility in India.

4. The Trade Marks of the Company is not registered and in case the company does not receive the registrations, it may affect the business goodwill.

5. Rapidly changing technology may render the business nonviable if not adopted quickly.

6. Majority of the regulatory approvals/registrations with regard to the manufacturing facilities being set up, as well as, the proposed expansion of the existing facilities are yet to be applied.

7. The project has not been appraised by a bank or term lending institution, the project cost is estimated by the company management.

OUT LOOK FOR PACKAGING INDUSTRY

The global packaging industry is expected to grow to USD 597 billion by 2014. India accounts for approximately 3% of this market at USD 18 billion and ranks 12th globally by market share. However, it is a highly fragmented and unorganized industry with the consequent lack of pricing power.

The Indian packaging industry is growing at a CAGR of 20-25% p.a. Growth in certain segment of the industry (such as laminated products and paperboard) is as high as 30% p.a.

VALUATION AND RECOMMENDATIONS:

Assuming that the company will post an EPS of Rs 9 for the FY 11, on the expanded post issue capital of Rs 12.81cr, the company is demanding a valuation around 14 times, which appears to be on the high side for a mid sized and not so professionally managed company. It is difficult to see any listing gains.  AVOID SUBSCRIPTION. 

6 comments:

  1. Another issue from the makers of Tara health foods. The IPO was withdrawn due to non subscription. do not buy the shares.

    ReplyDelete
  2. Super Bright Eng Co. are a leading, Distributors, supplier and exporter and Importers of an extensive range of Packaging products that have carved niche for themselves in the domain for their superior quality and durability. The products offered by us include Self Adhesive Tapes used full for general and industrial purpose, special application tapes, packaging tools and machinery, plastic packaging products, Anti- Rust and rust preventive solutions, packaging consumables and much more…

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  5. Adarsha Packaging is a Bangalore based manufacturer and supplier of packaging products. We provide customized Corrugated packaging for different types of products and ensure high quality and safest packaging boxes.


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