Notwithstanding Crisil’s poor rating, Olympic Cards’ IPO pricing does not look untenable considering the company’s dividend record, promoter’s long standing track in business and OLYMPIC brand’s popularity in South India.
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OFFER AT A GLANCE |
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Name |
OLYMPIC CARDS LTD |
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Offer Quantity |
78.1 to 83.3 lakh shares of Rs 10 each |
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% on Total Equity |
47.8 to 49.4% |
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Offer Price |
Rs 30 to Rs 32 |
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Offer Amount |
Rs 25 cr |
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Application Quantity |
200 & Multiples of 200 |
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Offer Opens |
March 9, 2012 |
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Bid/Offer Closes |
March 13, 2012 |
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Rated By |
CRISIL |
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Rating |
1 out of 5 |
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Lead Managers |
Ashika Capital |
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Registrars |
Cameo Corporate Services |
The Offer
Fresh equity issue of Rs 25 cr from the company with a price band of Rs 30 to Rs 32 for a Rs 10 paid-up share.
Issue Object
Expanding card manufacturing facility from 1770 lakh pieces to 2920 lakh pieces by setting up a new unit near Chennai at a cost of Rs 19.83 cr and establishing four new retail outlets at a cost of Rs 3.16 cr besides funding general corporate purposes and issue expenses.
Parentage
The genesis of the Chennai-based Olympic Cards Ltd traces back to fifty years. The present promoter Noor Mohammed’s father, N. M. Habibullah, started a proprietary concern in 1962 in name of Olympia Paper and Stationery Stores. This was later converted into a partnership firm in 1974 with Noor Mohammed and his brother Salahudeen Babu as partners.
In 1992, the brothers established a company in the name of Olympic Business Credits (Madras) Private Ltd which was renamed as Olympic Cards Ltd (OCL) in May 1998. OCL was formed mainly for manufacturing and trading of wedding cards and other associated products like greeting cards, office envelopes, cloth-lined covers, student note-books, account books, files, etc. In 2004, the brothers decided to pursue the business independently agreeing to use the same brand `OLYMPIC’.
Business Track
Olympic Cards Group has been in the wedding cards business for almost four decades with a dominant share in the wedding card market in Tamil Nadu. In an industry where the design clock keeps ticking, the survival of a company depends on timely innovation to beat outdated designs. Hence, the company has not only established an in-house research and development facility in Chennai to churn out new designs, but also takes inputs from industry experts by outsourcing card designing.
Though OCL manufactures and trades wedding and greeting cards, business cards, envelopes, letterheads, calendars, notebooks, account books, printing inks, etc., wedding invitation cards account more than a half of the company’s turnover. The company’s production facility is located in Chennai. Manufacturing sales reportedly contribute 84% of total revenue. Its existing client base includes wholesalers as well as retailers. The company procures its key raw material – paper and boards – locally as well as imports them from Indonesia and Hong Kong.
OCL’s revenue grew at a CAGR of about 23% between FY07 and FY11. The company’s EBITDA margin significantly expanded from 9.4% in FY07 to 16.8% in FY11. The company’s earnings net increased at a CAGR of 59% to Rs 2.19 cr in FY11 from Rs 34 lakh in FY07. The company’s RoE and RoCE were also attractive at about 25%. The company has paid dividends albeit in single digit for past five years.
Valuation
OCL’s price-band discounts its historical earnings about 12 times. The price is about two and a half of times of the net worth and less than one time of its revenue. These multiples indeed compare reasonably well with industry peer Archies. In fact, OCL’s OPM is far more attractive than Archies, whose Rs 2 paid-up share is currently quoting at Rs 25 offering 1.6% yield – almost similar to OCL.
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How Olympic Cards compares with peers |
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SCRIP |
NOS |
M-CAP |
P/E |
P/BV |
P/FV |
P/R |
OPM |
YIELD |
PRICE |
|
(06-MAR-2012) |
|
(Rs Cr) |
(x) |
(x) |
(x) |
(x) |
(%) |
(%) |
(Rs) |
|
Archies |
|
87 |
10.3 |
0.9 |
12.8 |
0.4 |
9.5 |
1.6 |
25.70 |
|
Vintage Cards |
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3 |
– |
– |
0.5 |
20.0 |
– |
0.0 |
4.86 |
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Greetings/Cards |
2 |
90 |
– |
1.0 |
6.6 |
0.4 |
6.6 |
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Market Compos |
2,918 |
|
15.9 |
2.4 |
29.4 |
1.3 |
22.0 |
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Olympic Cards |
High |
52 |
12.5 |
2.5 |
3.2 |
0.7 |
16.8 |
1.6 |
32.00 |
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|
Low |
51 |
11.7 |
2.3 |
3.0 |
0.6 |
16.8 |
1.7 |
30.00 |
CRISIL Rating
CRISIL has assigned a grade of ‘1/5’ (pronounced “one on five”) to OCL’s IPO. CRISIL claims to have considered the company’s business prospects, its financial performance, management capabilities and corporate governance practices.
The grade also factors in the company’s exposure to the risk of brand dilution as it shares the ‘Olympic’ brand with the promoter’s relatives who have a similar business. Centralized management and relatively weak internal processes and management information systems have also influenced the grade though the grade has recognized the company’s strong presence in the wedding card segment which is expected to grow 15-18% over the next three to five years.
Investment Banker’s Track
The Chennai-based OCL’s IPO is managed by Mumbai-based Ashika Capital which has roped in the Ahmedabad-based Kunvarji Finstock Pvt Ltd for part-underwriting the issue. The performance of IPOs lead-managed by Ashika is far from convincing. Of the 18 fixed-price IPOs lead-managed by Ashika between 2000 and 2008, just three are currently quoting above the offer price. In fact, seven companies are currently not traceable! Of the nine IPOs managed by Ashika after the advent of book building, only one is currently quoting at a premium.
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Performance of Ashika Capital associated IPOs |
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Sl. |
Issuer |
IPO |
FV |
IPO |
Listing |
Current |
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No. |
|
Date |
|
Price |
Gain% |
Gain% |
|
1 |
Resurgere Mines |
11-Aug-08 |
1 |
9 |
94.22 |
-97.11 |
|
2 |
Edserv Softsystems |
5-Feb-09 |
10 |
60 |
129.25 |
-45.17 |
|
3 |
Rishabhdev Techno |
4-Jun-09 |
10 |
33 |
-17.58 |
-90.82 |
|
4 |
Birla Shloka Educate |
11-Jan-10 |
10 |
50 |
0.70 |
-79.56 |
|
5 |
Tirupati Inks |
14-Sep-10 |
10 |
43 |
-14.77 |
-86.74 |
|
6 |
Bedmutha Industries |
28-Sep-10 |
10 |
102 |
77.25 |
-79.17 |
|
7 |
Sudar Garments |
21-Feb-11 |
10 |
77 |
46.88 |
0.00 |
|
8 |
Vaswani Industries |
29-Apr-11 |
10 |
39 |
-54.72 |
-74.80 |
|
9 |
VMS Industries |
30-May-11 |
10 |
40 |
-28.75 |
37.38 |
Concerns
- Poor corporate governance
- Weak second line of management : Family-run company with high dependence on the promoters
- More than one group company in the same line of business
- Limited market reach: Although around for over four decades, the company has hardly made any attempt to expand its reach beyond Chennai and Coimbatore; Existing manufacturing facility, all but one self-operated sales showrooms, and the five franchises are based in Chennai; only one sales showroom is located in Coimbatore
- Fragmented market with stiff competition
- Operates in a highly working capital-intensive industry
- Negative cash flow from operations
- Though funded fully by the IPO proceeds, the company’s Rs 24 cr project is not appraised by any external agency
- Project was at a preliminary stage and major orders for Plant & Machinery were yet to be placed as per the prospectus
- Against the IPO price of Rs 30-32, the promoters’ average cost stands at less than Rs 6.50
- Potential risk of brand dilution:OCL operates under the ‘Olympic’ brand. By virtue of family arrangement between the promoter and his brother the trademark is also used by successors of the latter who operate a business similar to Olympic Cards.