Notwithstanding encouraging peer group discounting on the trading screen, Tijaria Poly is hampered by adverse raw material prices and depleting rupee which could dent a hole in its profitability in the near term.
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OFFER AT A GLANCE |
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Name |
Tijaria Polypipes Ltd |
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Offer Quantity |
1 cr equity shares of Rs 10 each |
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% on Total Equity |
42.3% |
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Offer Price |
Rs 60 |
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Offer Amount |
Rs 60 cr |
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Application Quantity |
100 or multiples of 100 |
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Offer Opens |
September 27, 2011 |
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Bid/Offer Closes |
September 29, 2011 |
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Rated By |
ICRA |
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Rating |
2 out of 5 |
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Lead Managers |
Hem Securities |
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Registrars |
Sharex Dynamic |
The Issue
The present IPO is a fresh Issue of 1 cr equity shares of Rs.10 each at a fixed price of Rs 60 a piece aggregating to Rs 60 cr. The quantum of IPO works up to 42.3% on the post-issue equity of Rs 23.63 cr.
Issue Objective
The main object of the IPO is to part-finance the company’s expansion-cum- diversification project, estimated to cost Rs 108.52 cr. The funding plan is said to have been appraised by Bank of India which is reportedly extending a term loan of Rs 40 cr.
Parentage
Tijaria Polypipes Ltd (TPL) was incorporated in 2006 by converting a partnership firm, namely Tijaria Overseas Vinyl, which was started in July 2000. The promoters of the company, Tijaria Jain family, started the business in 1982 with trading activities. The family went into the manufacture of plastic pipes and fittings at Kota in 1987. The operations were shifted to Jaipur in Fiscal 2005.
Business
TPL is engaged in the manufacture of pre-lubricated HDPE Pipes, PVC/SWR pipes, sprinkler pipes/systems, flat tubes, fittings and PET straps with a total capacity of 25163 TPA. The company markets its products under the brand names Vikas and Tijaria. The major competitors of Tijaria are Jain Irrigation Systems, Supreme Industries, Finolex Industries and a large number of players in the unorganized sector. The company’s products are neither technology driven nor capital intensive and as such have relatively low entry barriers.
Growth Prospects
TPL is having a diversified product portfolio comprising HDPE/PVC pipes, fittings and sprinkler systems catering to telecom, water supply, sewerage and other applications. It has high profile customers like BSNL, L&T, Gujarat Water Supply and Sewerage Board, etc. Under the current expansion cum diversification, TPL also proposes to manufacture partially oriented yarn, zippers and mink blankets using PET flakes recycled from used PET bottles, jars and utensils as raw material. The company claims to have adequate marketing and distribution network in order to cater to retail sales in the domestic market.
In last six years, the company’s sales grew at a CAGR of 47% and its operating margin has been intact on increased sales. The ROCE has been more than 26% in last three years and RONW was more than 20% in the same period. TPL banks on favourable growth prospects in drip irrigation and government’s impetus on infrastructure development for its future growth.
Valuation
Plastic pipes and fittings industry currently commands a better discounting on the trading floor as compared to the overall market. Nevertheless, the industry ratios are highly skewed by the ultra-heavy weight in the industry, Jain Irrigation systems. Among recent IPOs from the industry, only Astral Poly has done fairly well while Texmo Pipes and Tulsi Extrusions have failed miserably. Thus, while TPL’s pricing looks cheap against the industry composite, it may not be attractive when compared to stocks like Kisan Mouldings.
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How Tijaria Poly compares with Peer Group |
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SCRIP |
NOS |
M-CAP |
P/E |
P/BV |
P/FV |
P/R |
OPM |
YLD |
PRICE |
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(23-Sep-2011) |
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(Rs Cr) |
(x) |
(x) |
(x) |
(x) |
(%) |
(%) |
(Rs) |
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Jain Irrigation Sys |
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6,555 |
21.2 |
3.9 |
85.0 |
1.8 |
22.6 |
0.6 |
169.95 |
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Astral Poly Technik |
|
409 |
11.3 |
2.8 |
36.4 |
0.9 |
13.0 |
0.6 |
182.10 |
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Texmo Pipes |
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96 |
14.4 |
1.3 |
4.0 |
0.8 |
14.7 |
0.0 |
40.40 |
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Kisan Mouldings |
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38 |
6.5 |
0.6 |
2.8 |
0.1 |
11.2 |
3.6 |
27.70 |
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Tulsi Extrusions |
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35 |
27.5 |
0.2 |
1.3 |
0.2 |
10.9 |
0.0 |
12.60 |
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Rungta Irrigation |
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26 |
21.3 |
0.5 |
2.9 |
0.3 |
5.2 |
0.0 |
28.50 |
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Plastic Pipe Composite |
13 |
7,455 |
20.0 |
3.2 |
33.5 |
1.4 |
18.0 |
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|
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Tijaria Polypipes |
|
142 |
11.8 |
2.3 |
6.0 |
0.7 |
11.2 |
2.5 |
60.00 |
Exiting Shareholders’ Cost
Of the existing equity (136.26 lakh shares), three core promoters hold 58.1 lakh shares whose average cost of acquisition is just Rs.3.33 per share. The balance 78.16 lakh shares are held by relatives and group companies whose cost per share amounts to Rs.17.10. Hence, once the lock-in lapses (after a year), the market may find excess liquidity which without a corresponding rise in earning may doom the prospects of the share.
Investment Bankers’ Track
The Jaipur-registered TPL’s IPO is managed by the Mumbai-based Hem Securities whose clients’ track record is none too impressive. Towards the end 2010 Hem brought out Shekhawati Poy-Yarn which, though commanded premium in first three months of listing, is currently languishing 24% below the offer price. In its previous `avataar’ as Hem Financial the investment banker brought out six IPOs during the unprecedented primary market boom between 1995 and 1996. Except just one, none of those companies are now traceable!
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Status of Hem-managed IPOs |
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Issuer |
IPO |
FV |
IPO |
Listing |
3-Mon |
6-Mon |
Current |
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Date |
|
Price |
Gain% |
Gain% |
Gain% |
Gain% |
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Shekhawati Poly |
27-Dec-10 |
10 |
30.00 |
58.3 |
40.2 |
1.3 |
-24.3 |
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H N Finance |
04-Dec-95 |
10 |
15.00 |
|
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|
|
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Indergiri Finance |
08-Jan-96 |
10 |
10.00 |
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|
|
17.0 |
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RS Industries |
22-Feb-96 |
10 |
20.00 |
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Tridev Finance |
02-Dec-96 |
10 |
10.00 |
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|
|
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BFL Developers |
03-Dec-96 |
10 |
10.00 |
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Concerns
- Vulnerability of profitability to the fluctuations in Crude Oil prices, as the major raw materials are petroleum derivatives.
- Promoters have three more companies in the lines of business similar to TPL which have no non-competing agreement.
- Relatively smaller player in the plastic pipes business which exposes the company to intense competition.
- Execution risk associated with substantial capital expenditure for diversification project, it being a new area of business for the company.
- Orders for significant portion of Plant and Machinery required for expansion cum diversification project not yet placed.
- Exposed to international competition, especially from countries like China which are supplying goods at much lower prices.
- Delayed payment realization from Government departments.
- Most of the machines imported are from China whose credentials are not well known.