Flexituff International Limited is tapping the capital markets with its IPO for 67.5 lac shares in a price band of Rs 145-155. The issue comprises of a fresh issue of 45 lac shares and an offer for sale by a private equity investor of 22.5 lac shares. The issue has opened on Thursday the 29th of September and closes on Tuesday the 4th of October for QIB’s and for other bidders on Wednesday the 5th of October.
| Price Band | Rs 145 – Rs 155 |
| Offer size in shares | 67,50,000 Equity Shares |
| Fresh Issue | 45,00,000 Equity Shares |
| Offer For Sale | 22,50,000 Equity Shares |
| Issue Size | Rs 97.88 crs at lower end to Rs 104.62 crs at upper end |
| QIB’s | 33,75,000 Equity Shares |
| Non Institutional Investors | 10,12,500 Equity Shares |
| Retail Investors | 23,62,500 Equity Shares |
| Book Running Lead Manager | Collins Stewart Inga Private Limited |
| Syndicate Members | Ajcon Global Services Limited |
| Hem Securities Limited | |
| ITI Financial Services Limited | |
| ITI Securities Limited | |
| Sunidhi Securities & Finance Limited | |
| Issue Opening Date | Thursday 29th September 2011 |
| Issue closing date for QIB’s | Tuesday 4th October 2011 |
| Issue closing date for other than QIB’s | Wednesday 5th October 2011 |
| IPO Grade | CARE grade 3/5 indicating average fundamentals |
| Paid -up Capital Pre IPO | 1,72,12,110 Equity Shares |
| Paid -up Capital Post IPO | 2,17,12,110 Equity Shares |
| Market Cap post listing | 314.82 crs at lower band to Rs 336.53 crs at higher band |
| Bid Lot | 40 shares |
| Bidding Amount for Retail | 1280 shares at Rs 155 or Rs 1,98,400 per application |
Business
Flexituff is in the business of manufacturing FIBC (Flexible Intermediate Bulk Containers), Geo-Textile fabric and ground cover, reverse printed BOPP Woven bags, special PP bags including Leno bags. The products are manufactured at the company’s three manufacturing plants where two of them are located at Pithampur in Indore (Madhya Pradesh) and in Kashipur (Uttrakhand). The company also has a recycling and reprocessing plant at Kandla which is used for recovering polypropylene and making various compounds of plastics. The step down subsidiary Lakshmi Incorporated, USA manufactures reclosable extruded zipper profile which is used as a secondary closure for 5-50 kg bags.
The companies Pithampur unit manufactures food grade FIBC and is approved by AIB-USFDA for food contact packaging facility.
Objects of the Issue
It may be mentioned that the issue comprises of a fresh offer of shares and also an offer for sale of shares. Two-thirds of the issue proceeds would go to the company and one-third would go to the private equity investor.
The objects of the issue are as follows: –
| Rs in million | |
| Expansion of Manufacturing facilities at SEZ and DTA units at Pithampur | 189.32 |
| Setting up of Dripper Project at Kashipur | 80.97 |
| Working Capital Requirements | 250.00 |
| General Corporate Purposes |
Financials
The company’s sales have more than doubled in the last two years, from Rs 261.4crs in the year ended March 2009 to Rs 577.94crs in the year ended March 2011. The net profit in the same period has grown from Rs 6.89crs in March 2009 to Rs 33.74crs in March 2011.
| year 2009 | year 2010 | year 2011 | |
| Operating Income | Rupees in millions | ||
| Sales | 2614.11 | 3211.02 | 5779.40 |
| Increase/(decrease) in stock | 3.60 | 263.51 | 390.00 |
| Other Income | 8.55 | 9.94 | 14.53 |
| Total Income | 2626.26 | 3484.47 | 6183.93 |
| Manufacturing Expenses | 2004.41 | 2712.81 | 4767.63 |
| Adminstration Expenses | 35.28 | 59.87 | 89.51 |
| Selling Expenses | 169.64 | 201.80 | 436.23 |
| Interest and Financial Charges | 207.29 | 215.67 | 277.41 |
| Other Expenses | 106.41 | 204.53 | 270.76 |
| Total Expenses | 2523.03 | 3394.68 | 5841.54 |
| Profit Before Tax | 103.23 | 89.79 | 342.39 |
| Tax payments | 23.98 | 43.81 | 32.71 |
| Net Profit After Tax | 79.25 | 45.98 | 309.68 |
| Adj on account of acctg policy | 10.26 | -13.08 | -27.68 |
| Net Profit After Tax and adj | 68.99 | 59.06 | 337.36 |
| Net Margins | 2.62693 | 1.694949 | 5.45543 |
The net margins have improved substantially and are now around 5.45%. The total installed capacity of the company has increased from 48,500 tons to 70,311 tons post the expansion as proposed by the company as part of the objects of the issue. The full facility would take some time but capacity has been added in the current year as well and the company which operates virtually to full capacity would generate top line revenue of Rs 825-850 crs in the current year and roughly Rs 960-980 crs in the year ended March 2013. With increased capacity and higher operating efficiencies, the net margins would improve further. The company should earn a net profit of Rs 40-42 crs in the current year and a net profit of Rs 57-59 crs in the year ended March 2013.
Comparisons
The company has chosen its peer group as Jumbo Bag, Neo Corp International and EmmbiPolyarns Limited. Recently about a fortnight ago there was another issue from RDB Rasayans Limited which had tapped the capital markets. This company is also in the same line of business and had operating revenue of Rs 42.42 crs for the year ended March 2011. The net margins were 4% and the company had issued shares at a market cap of Rs 140 crs at the upper band. The market cap to sales asked for by RDB was 3.3 times sales by which yardstick Flexituff at sales of Rs 578 crs should have been at a market cap of Rs 1900 crs. The company’s market cap at the upper price band would be a mere Rs 336.53 crs which would translate into a market cap of sales of 0.58 times.
The other comparisons are with Jumbo Bag which has revenues of Rs 104 crs, a net profit of Rs 0.61 crs and a PE ratio of 21.82 times. Neocorp has revenue of Rs 307 crs, and profits of Rs 14 crs and the PE ratio is 4.25 times. EmmbiPolyarns Limited has revenues of Rs 75.40 crs, net profit of Rs 2.578 crs and a PE ratio of 8.59 crs.
Very clearly this business needs size and that is an important factor because overseas buyers are the key to the growth of this business. I believe Flexituff has a clear advantage with its size and validations which give the company a distinct advantage.
Valuations
Based on the fully diluted equity of 2.17 cr shares the EPS based on consolidated results for March 2011 is Rs 15.53. Based on this EPS the price earnings ratio would be 9.33 times at the lower end of the price band of Rs 145 and 9.97 times at the upper end of the price band of Rs 155. If one were to consider that we have already finished the first half of the current year and calculated the PE based on expected March 2012 numbers the same would improve to 8 times at the upper end of the price band.
Conclusion
There are currently half a dozen issues open. Most of them have come with valuations which are sky-high and are very expensive. This issue is fairly reasonable and offers scope for growth and profits in the medium term. I believe this issue shouldbe subscribed to with a medium term prospective.
SEBI Disclaimer: – I intend to subscribe to the above issue.
