Concerns galore!
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OFFER AT A GLANCE |
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|
NAME |
PARAMOUNT PRINTPACKAGING LTD |
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OFFER QUANTITY |
1,30,94,175 Shares of Rs 10 each |
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% on TOTAL EQUITY |
49% |
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OFFER AMOUNT |
Rs 41.9 cr to Rs 45.8 cr. |
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OFFER PRICE |
Rs 32 to 35 |
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BID QUANTITY |
150 & Multiples of 150 |
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OFFER OPENS |
April 20, 2011 |
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OFFER CLOSES |
April 25, 2011 |
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RATED BY |
ICRA |
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RATING |
2/5 |
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LEAD MANAGERS |
Onelife Capital Advisors |
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REGISTRARS |
Sharepro Services |
Issue Objects
The main object of the IPO is to set-up a unit in Gujarat at a cost of about Rs 32 cr for manufacturing high-end Duplex Board Cartons, Shippers and Printed Corrugated Boxes besides augmenting long-term working capital to the tune of Rs 5 cr.
Parentage
The Navi Mumbai-based Paramount Printpackaging Ltd (PPL) is controlled by the Sukhadia family who were the partners of Paramount Printing Press established in 1941. The promoters shifted from stationery printing to packaging in 1982. PPL was originally formed as a partnership firm in 1985 which was converted into a private limited company in 2006. This is reportedly the first public issue of the promoters.
Business
Currently PPL has a factory at Navi Mumbai with an annual capacity to convert about 6000 tons of paper board into cartons. The company’s integrated plant claims to have capability to produce 20 lakh cartons per day. Pharma, FMCG, Auto Ancillary, Tobacco, Food & Beverages are some of the major end-users of PPL’s cartons. From the Navi Mumbai plant, the company caters to its clients in Maharashtra, Goa, Gujarat, Karnataka, Himachal, M.P. and the UK.
At the proposed new facility in Gujarat, PPL proposes to make high-end duplex board cartons (15 lakhs per day) and printed corrugated boxes (7 tons per day) to cater to its existing client-base.
Growth Prospects
PPL, whose present gross block is valued at Rs 35 cr, now propose to add another Rs 30 cr through the new project which is scheduled to be completed by the third quarter of fiscal 2012. Since PPL already commands a higher operating margin (21%) as compared to its peers in the industry, if the project is completed on time, the company should be able to make adequate profit to service the post-issue equity.
Valuation
Whereas the market as a whole is currently valued 18 times the earnings, packaging industry, consisting of 60 companies, has a P/E of around 15 times. Carton box units have a mixed discounting. However, the best in the industry commands a P/E of only 12 times its earnings, 1.3 times the net worth and just 0.5 times of the turnover. Compared to this, Paramount’s valuation even at the lower price-band of Rs 32 looks costly.
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HOW PARAMOUNT COMPARES WITH ITS PEERS |
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SCRIP |
COS |
M-CAP |
P/R |
P/E |
P/BV |
P/FV |
PRICE |
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|
|
(Rs Cr) |
(X) |
(Rs) |
|||||
|
Paper Products |
|
367 |
0.5 |
12.2 |
1.3 |
29.3 |
58.55 |
||
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Rollatainers |
|
218 |
4.5 |
-32.6 |
-6.2 |
21.8 |
217.65 |
||
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Well Pack Papers |
|
47 |
1.5 |
29.2 |
4.8 |
5.7 |
5.71 |
||
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CARTON UNITS COMPO |
3 |
631 |
0.8 |
25.1 |
2.4 |
20.6 |
|
||
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PACKAGING COMPOS |
60 |
10,890 |
1.0 |
14.9 |
1.4 |
14.3 |
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MARKET COMPOSITE |
2,991 |
6,868,301 |
1.8 |
18.3 |
3.1 |
34.3 |
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||
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PARAMOUNT PRINTPACK |
HIGH |
41 |
0.7 |
18.0 |
2.3 |
3.5 |
35 |
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|
|
LOW |
37 |
0.6 |
16.4 |
2.1 |
3.2 |
32 |
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Concerns
- Though two-thirds of the issue proceeds is ear-marked for setting up new project, it has not been appraised by any Bank or Institution or independent agency
- IPO risk factor reads that the project is at a preliminary stage
- The company has an export obligation of more than Rs 40 cr
- Capacity utilization in fiscal 2010 was less than 70%
- Pre-IPO placements were made in February/March 2011 at lower (Rs 28 to Rs 30) than IPO price
- Promoters would hold only 40.5% in the post-issue capital and their average cost of holding is less than Rs 12 per share
- Though asking for a premium of Rs 22 to Rs 25, the company is yet to join the dividend list
- Promoter group entities continue to make losses
- Existing bottom line (Rs 1.7 cr for 9 months up to December 2010) is too small to adequately service the post-issue capital of Rs 26.70 cr.
- By its own admission, PPL’s new project may not add much to its bottom line till fiscal 2012
- The company has failed to remit contributions to Employee Provident Fund and State Insurance Funds amounting to around Rs 25 lakh whose penalty could be Rs 20 lakh