Scale of operations and profitability favour Flexituff though promoters’ stake, poly sacks’ poor discounting, credibility issues, etc. weigh against the hefty offer.  

OFFER AT A GLANCE
Name	Flexituff International Ltd
Offer Quantity	67.5 lakh shares of Rs 10 each
% on Total Equity	31.1%
Offer Price	Rs 145 to Rs 155
Offer Amount	Rs 98 cr to Rs 105 cr
Application Quantity	40 & Multiples of 40
Offer Opens	September 29, 2011
Bid/Offer Closes	October 5, 2011
Rated By	CARE
Rating	3 out of 5
Lead Managers	Collins Stewart Inga
Registrars	Sharepro Services

 

The IPO

The IPO consists of a fresh issue of 45 lakh shares from the company and an offer for sale of 22.5 lakh shares from Clearwater Capital (Cyprus) aggregating to Rs 67.5 lakh shares. The issue, valued between Rs 98 cr and Rs 105 cr, is being offered through the book-building route with a price band of Rs 145 to Rs 155.

 

Issue Objective 

Of the fresh issue amount of Rs 65.25 cr, the company proposes to spend Rs 19 cr towards expansion of its SEZ and DTA units at Pithampur (MP) and Rs 8 cr towards setting up of dripper project at Kashipur. As much as Rs 25 cr is ear-marked for working capital and the balance is meant for general corporate purposes.

 

Legacy

The Kolkata-registered (plant located at Pithampur) Flexituff International Ltd (FIL) is controlled by Indore-based Kalani family who are reportedly involved in the business of packaging over 15 years.

The company which is going public was originally constituted as a partnership in1966 by the Kalanis under the name and style of Saurabh Potteries & Ceramics with its principal place of business at Indore. Since then, the partnership was reconstituted from time to time by way of admission of new partners or resignation of the then existing partners. In 1993, the name of the partnership was changed to Naviska Packaging which was converted into a private limited company. In June 2001, the name was changed to Giltpac International India Private Limited which was again reverted to Naviska Packaging Private Limited in January 2003! Three months later, in April 2003, the name was changed to the present one. 

FIL is the second public attempt of Kalanis who have considerable interests in real estate development and closely associated with Phoenix group of Ruias. In mid-2010, Entertainment World Developers Ltd (EWDL) filed the prospectus but, for reasons best known to them the promoters did not pursue the issue. FIL’s managing director, Manish Kalani, was the MD of EWDL too.

A disturbing aspect of this group is, it has more than one company in related line of business and the name and registered office of some of the companies have been changed frequently.  

 

Business

FIL has fully integrated operations manufacturing FIBC (jumbo bags), Geo-Textile Fabric and Ground Cover (used for prevention of landslides, control of soil erosion and river bank protection), Reverse Printed BOPP Woven Bags, Special PP Bags including Leno Bags. FIBC (bags used in bulk packaging) accounts for more than 65% of the company’s revenue.

The company has three manufacturing units located in Pithampur (M.P.) and Kashipur (Uttrakhand). It also has a recycling and reprocessing plant at Kandla which is used for recovering polypropylene and making various compounds of plastics. FIL’s step-down subsidiary, Lakshmi Incorporated, U.S.A, manufactures re-closable extruded zipper profile which is used as a secondary closure for 5-50 kg bags.

Further, FIL also has a R&D centre at Kashipur which is engaged in the development of various compounds for plastic products including engineering plastic, bio-degradable plastic and other new product developments.

 

Track & Prospects

FIL started with a DTA Unit at Pithampur in fiscal 1994 manufacturing FIBCs/ HDPE bags. It added the unit at SEZ in fiscal 2004 for the manufacture of FIBC and the unit at Kashipur, Uttarakhand, was started in 2009-10.  The recycling and reprocessing unit at Kandla is operating as a subsidiary, Satguru Polyfab Private Limited.

The company’s gross block has grown from Rs 77 cr in 2007 to Rs 290 cr in 2011. Its bottom line, valued around Rs 8 cr between 2007 and 2010, shot up to Rs 27 cr in Fiscal 2011. FIL’s net worth has increased from Rs 42 cr in 2007 to Rs 163 cr in 2011.

At the end of fiscal 2011 FIL had an aggregate capacity of 48,500 and achieved an impressive capacity utilization of 90%. The company proposes to enhance the capacity to over 70000 in fiscal 2012 and more than 77000 in 2013.  The capacity utilization is projected to be maintained around 90%.

 

Valuation 

Even though poly bag stocks are currently discounted poorly on the trading screen, FIL’s pricing compares reasonably well considering its standing in the industry. Nevertheless, the average cost of holding of the existing shareholders, the uncertainties attached to the expansion and the concerns enumerated below may advise one to tread cautious.   

How Flexituff compares with Peer Group
SCRIP	NOS	MCAP	P/E	P/BV	P/FV	P/R	OPM	YIELD	PRICE
(27-Sep-2011)		(Rs Cr)	(x)	(x)	(x)	(x)	(%)	(%)	(Rs)
Emmbi Polyarns		24	6.8	0.5	1.5	0.3	9.1	1.4	14.70
Kanpur Plastipack		20	3.1	1.0	3.7	0.2	9.4	2.7	37.30
Jumbo Bag		14	19.0	0.8	1.7	0.1	7.2	0.0	16.95
Polyspin Exports		9	5.0	1.1	2.2	0.2	10.8	4.5	22.25
Fiberweb (India)		7	8.4	-0.2	0.7	0.2	5.7	0.0	6.52
Pankaj Polymers		6	26.9	0.6	1.0	0.2	3.2	0.0	10.18
Gujarat Raffia Indus		2	3.9	0.2	0.4	0.1	5.9	0.0	4.02
Poly Sacks Composite	7	81	5.8	1.1	1.5	0.2	8.1
Flexituff International	High	337	9.7	1.8	15.5	0.5	13.2	0.6	155.00
	Low	315	9.1	1.7	14.5	0.5		0.7	145.00

 

Existing Shareholders’ Cost

Between September 2010 and February 2011, the company issued more than 49 lakh shares at a price of Rs 103 and Rs 118.  The cost for Clearwater Capital, which was allotted 44,86,492 share at the rate of 102.53 in February this year, will be brought down to less than Rs 60 a share if they succeed in the offer for sale of  22.5 lakh shares. The cost to the promoter companies works out to Rs 59.59 for Kalani Industries Private Limited, Rs 6.81 for Miscellani Global Private Limited and Rs 8.30 for Sanovi Trading Private Limited.

 

Investment Bankers’ Track

FIL’s IPO is managed by a low profile Mumbai-based investment banker, Collins Stewart Inga, who has been associated with four IPOs in three years between 2008 and 2010. None of these issues is currently trading above the offer price. In fact, all of them have inflicted sizable capital loss (43% to 73%) on the public-investors.

 

Performance of Collins Stewart Inga-associated IPOs

Issuer	IPO	FV	IPO	Listing	Current
	Date		Price	Gain%	Gain%
Cords Cable	21-Jan-08	10	135.00	2.4	-76.4
Gammon Infra	10-Mar-08	2	33.40	-5.4	-58.7
Intrasoft Techno	23-Mar-10	10	145.00	9.9	-62.1
Technofab Eng	29-Jun-10	10	240.00	23.2	-43.5

Note: Price adjusted to post-IPO splits

 

Concerns

• Packaging market is highly competitive with a large number of players.
• Promoters have too many small companies, more than a dozen group companies making losses.
• Post-IPO promoters’ stake is only 26%.
• Resignation of senior executives in 2010.
• Highly volatile raw material prices.
• Major revenue from exports to US and Europe which are currently under recession.
• Absence of long term contracts with Customers – 90% of sales procured as spot orders.
• Expansion project or the purposes for which the proceeds of the fresh issue are to be utilized have not been appraised by any bank or financial institution.
• Yet to place orders for machinery required for expansion.
• Reduction or termination of tax incentives and benefits to units in Special Economic Zone (SEZ).