More than a dozen existing listed companies in poly sacks space do not add up to a market cap of Rs 110 cr but that does not deter the sixth public entity of the RDB group from asking a m-cap of Rs 140 cr for a capacity of only 14450 tonnes. No wonder NSE did not find it fit for listing!
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OFFER AT A GLANCE |
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|
Name |
RDB Rasayans Ltd |
|
Offer Quantity |
45 lakh shares of Rs 10 each |
|
% on Total Equity |
25.4% |
|
Offer Price |
Rs 72 to Rs 79 |
|
Offer Amount |
Rs 32.4 cr to Rs 35.6 cr |
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Bid Quantity |
80 & Multiples of 80 |
|
Bid/Offer Opens |
September 21, 2011 |
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Bid/Offer Closes |
September 23, 2011 |
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Rated By |
Brickwork Ratings |
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Rating |
2 out of 5 |
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Lead Managers |
Charted Capital |
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Registrars |
Link Intime India |
Issue Objective
The present IPO is a fresh Issue of 45 lakh equity shares of Rs.10 each constituting 25.4% of the company’s post-issue capital amounting to Rs 32.4 cr to Rs 35.5 cr.
The company is raising equity funds primarily to expand its installed capacity of poly bags from 7000 TPA to 14450 TPA by establishing Unit-II adjacent to its existing manufacturing facility in Haldia at an estimated cost of Rs.32.65 cr. However, the funds requirement for the project is not appraised by any independent agency. Deployment of funds is thus entirely at the discretion of the management.
Parentage
RDB Rasayans Ltd (RRL) is part of the Kolkata-head quartered RDB Group promoted by the 56 year-old Sunder Lal Dugar. Engaged in infrastructure development, tobacco/cigarettes, printing/packaging, containers/bags, automobiles marketing, retailing, production/installation of power transmission lines and logistics, RDB group boasted consolidated revenue of over Rs.1100 cr in fiscal 2010.
In fact RDB is not new to investing public. The group has five listed entities of which two namely NTC Industries and RDB Realty & Infrastructure are listed on the country’s premier stock exchange, BSE.
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BSE-Listed RDB Group Companies |
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NAME |
M-CAP |
PE |
P/BV |
P/FV |
P/R |
OPM |
YIELD |
PRICE |
|
|
(Rs Cr) |
(x) |
(%) |
(Rs) |
||||
|
RDB Realty |
50 |
11.6 |
0.8 |
4.6 |
0.8 |
16.0 |
1.3 |
46.15 |
|
NTC Industries |
30 |
252.3 |
1.1 |
2.8 |
1.6 |
2.7 |
0.0 |
27.75 |
Business
Even though RRL was incorporated in 1995, the company commenced manufacture of small poly bags only in 2003. Manufacture of Flexible Intermediate Bulk Containers (FIBC) or Jumbo Bags with installed capacity of 1,800 TPA was started in 2004. The capacity was reportedly increased to 6,050 TPA in 2009 and further to 7,000 TPA in 2010. According to the offer document, RRL can produce 2 lac jumbo bags and 25 lac PP woven sacks per month.
Growth Prospects
India is claimed to be the third largest producer of Flexible Intermediate Bulk Containers (FIBC) in the world after China and Turkey. Indian producers are increasingly penetrating newer markets by either selling overseas through resellers or direct supply to end users. Indian companies enjoy strategic benefits compared to other international players due to low labour costs, procurement of raw material and proximity to end markets. In the international market, Indian producers compete with price-competitive Chinese producers. The Turkish producers have advantage in terms of proximity to European countries but lack price competitiveness compared to Indian and Chinese producers.
No doubt, bulk packaging products (FIBC or jumbo bags) are increasingly gaining acceptance over other forms of packaging such as jute based products both in the domestic as well as overseas markets. FIBCs are cost effective, easy to handle and produce, can be customized based on client requirement and have superior quality in terms of load handling and resistance to chemicals. As such over the period the capacity of FIBC has increased manifold. Within packaging industry polymer-based flexible bulk packaging products account for about 18% of the demand and this segment is expected to grow by about 15-20% in the next five years. Nevertheless, on the flip side, raw material which is the major cost-component may keep profit margins of players under pressure as prices of crude derivatives are expected to rise in FY12 and FY13.
As regards RRL’s track record, sales have grown inconsistently over the years and profitability has been under pressure from increased input-costs. The company does not enjoy any technological advantage but, on the contrary, faces stiff competition from other players. Though it has strategic location advantage in terms of proximity to clients and nearby ports enabling it to timely delivery with minimal logistics costs, it has experienced labor unrests in the past. Occurrence of such events in the future could hamper company’s operations.
Valuation
Poly sacks segment is one of the poorest discounted industries on the trading floor. Whereas the market composite P/E is above 15x and price/book value is around 2.4x, poly sacks industry has a P/E of less than 7x and P/BV is just 1.1. Further, the price to revenue ratio of poly sacks industry is abysmally low at 0.2 times when compared to the market composite of 1.5x.
RRL’s current EPS is only Rs 1.38 which is the highest in last three year. The book value of the share amounts to Rs.13.53. Thus even the lower price band of Rs 72 discounts the earnings as high as 52 times and the book value 5.3 times which is grossly unjustifiable. In fact, none of the RDB group’s existing listed companies enjoy a P/BV of more than 1.1x. RRL is being valued at Rs 140 cr (at the higher-end of Rs 79 per share) when the existing two BSE-listed companies of the group could not command a m-cap of even Rs 100 cr.
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How RDB Rasayans compares with Peer Group |
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SCRIP |
NOS |
M-CAP |
P/E |
P/BV |
P/FV |
P/R |
OPM |
YIELD |
PRICE |
|
(16-Sep-2011) |
|
(Rs Cr) |
(x) |
(x) |
(x) |
(x) |
(%) |
(%) |
(Rs) |
|
Emmbi Polyarns |
|
24 |
6.6 |
0.5 |
1.4 |
0.3 |
9.1 |
1.4 |
14.37 |
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Kanpur Plastipack |
|
21 |
3.3 |
1.0 |
3.9 |
0.2 |
9.4 |
2.6 |
39.05 |
|
Jumbo Bag |
|
14 |
19.8 |
0.8 |
1.8 |
0.1 |
7.2 |
0.0 |
17.65 |
|
Mewar Polytex |
|
10 |
15.7 |
1.0 |
3.2 |
0.3 |
9.3 |
0.0 |
31.65 |
|
Polyspin Exports |
|
9 |
5.1 |
1.1 |
2.3 |
0.2 |
10.8 |
4.4 |
22.70 |
|
Fiberweb (India) |
|
8 |
8.9 |
-0.2 |
0.7 |
0.2 |
5.7 |
0.0 |
6.87 |
|
Pankaj Polymers |
|
7 |
31.7 |
0.7 |
1.2 |
0.2 |
3.2 |
0.0 |
12.01 |
|
Stanpacks (India) |
|
3 |
– |
0.6 |
0.5 |
0.1 |
10.4 |
0.0 |
5.00 |
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Gujarat Raffia Indus |
|
2 |
3.8 |
0.2 |
0.4 |
0.1 |
5.9 |
0.0 |
3.99 |
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Poly Sacks Industry |
9 |
97 |
6.7 |
1.1 |
1.5 |
0.2 |
8.3 |
|
|
|
Market Composite |
2,909 |
6,144,226 |
15.6 |
2.4 |
29.7 |
1.5 |
22.6 |
|
|
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RDB Rasayans |
Hi-bd |
140 |
57.3 |
5.8 |
7.9 |
2.3 |
10.9 |
|
79.00 |
|
|
Lo-bd |
128 |
52.3 |
5.3 |
7.2 |
2.1 |
|
|
72.00 |
Exiting Shareholders’ Cost
The average cost of promoters holding is between 76 paise and Rs2.50 per share. The non-promoter group, mainly the infamous Delhi-based Growth Techno Projects Ltd promoted by Acharya Arundev, holds 16.4 lakh shares (9.26% of the post-issue equity) whose cost is Rs2.50. Hence, once the lock-in lapses the private placement holders who are saddled with the shares for many years may rush in to dump the share at the first available opportunity.
Investment Bankers’ Track
The Kolkata-registered RRL’s IPO is managed by the Ahmedabad-based Chartered Capital which brought out six IPOs in last three years whose performance on the trading floor is frightening. None of the six IPOs is currently trading above the offer price. In fact, all the six IPOs have inflicted a capital loss of more than 70% on the public investors.
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Chartered Capital-managed IPOs’ performance |
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Issuer |
IPO |
FV |
IPO |
GAIN OR LOSS SINCE LISTING |
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|
Date |
|
Price |
Listing |
3-Mon |
6-Mon |
1-Yr |
2-Yr |
3-Yr |
Current |
|
Birla Cotsyn |
Jun-08 |
1 |
1.17 |
-34.0 |
-66.6 |
-73.4 |
-54.6 |
-40.0 |
-66.6 |
-70.0 |
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Excel Infoways |
Jul-09 |
10 |
85.00 |
12.5 |
-29.4 |
-40.1 |
-41.7 |
-80.6 |
|
-84.9 |
|
Thinksoft Glob |
Sep-09 |
10 |
125.00 |
31.4 |
286.6 |
32.6 |
-8.4 |
|
|
-70.2 |
|
Syncom Health |
Jan-10 |
10 |
75.00 |
17.1 |
-37.9 |
-44.4 |
-54.7 |
|
|
-78.5 |
|
Sea Tv Network |
Sep-10 |
10 |
100.00 |
6.0 |
-63.2 |
-75.1 |
|
|
|
-80.6 |
|
Gyscoal Alloys |
Oct-10 |
10 |
71.00 |
14.9 |
-70.4 |
-77.7 |
|
|
|
-85.0 |
|
Note: Price adjusted to post-issue splits |
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Concerns
- Packaging market in India is highly competitive with a large number of players.
- Promoters have too many small companies. Of the 50-odd group companies, 35 have incurred losses during last 3 years.
- Operating cash flow of the issuer-company was negative in last fiscal.
- Promoters do not have much experience in packaging industry and are largely dependent on the key managerial personnel.
- Issuer-company is yet to place orders for plant & machinery and it has also not applied for additional power and water.
- Issuer-company is yet to pay dividend.
- Registered office has been rented from one of the group companies and the corporate office has been rented from one of the promoters.
- NSE did not consider giving listing approval for the shares!