Paramount Printpackaging Limited is tapping the capital markets with its IPO which has opened on Wednesday the 20th of April and closes on Monday the 25th of April. The price band is Rs 32-35 and the issue would raise between Rs 42 and 46 crs. At the end of two days the issue is subscribed 22% and the issue closes on Monday the 25th of April.
| Price Band | Rs 32 – Rs 35 |
| Offer size in shares | 1,30,94,175 Equity Shares |
| Issue Size | Rs 41.90 crs at Rs 32 to Rs 45.83 crs at Rs 35 |
| QIB’s | 65,47,088 Equity Shares |
| Non Institutional Investors | 19,64,126 Equity Shares |
| Retail Investors | 45,82,961 Equity Shares |
| Book Running Lead Manager | Onelife Capital Advisors Limited |
| Syndicate Members | Sunidhi Securities and Finance Limited |
| Hem Securities Limited | |
| Isssue Opening Date | Wednesday 20th April |
| Isssue closing date | Monday 25th April |
| IPO Grade | ICRA grade 2/5 indicating below average fundamentals |
| Paid -up Capital Pre IPO | 1,36,05,865 Equity Shares |
| Paid -up Capital Post IPO | 2,67,00,040 Equity Shares |
| Market Cap post listing | Rs 85.44 crs at lower band to Rs 93.45 crs at higher band |
| Bid Lot | 150 shares |
| Bidding Amount for Retail | 5,700 shares at Rs 35 or Rs 1,99,500 per application |
Business
Paramount started business as a stationery printer at Dalal Street and has now moved into the business of being a printer offering folding box carton packaging material. The company started these operations with a single colour Adast Dominant machine and a two colour Solna machine.
Today Paramount offers complete printing solutions with printing, hot foil stamping, varnishing, die cutting, UV Coating, lamination, punching and pasting. The company has its own pre-press and ink matching centre. The company has a large customer base and many of them are in the FMCG category including food items. Some of the sectors where the company is a supplier include pharma, automobile ancillary, electrical industry amongst others.
The business has been growing but it is a very competitive industry and typically has long payment periods. This leads to interest costs eating away a large part of the profits.
Objects of the issue
The company proposes to set up a new unit in Gujarat to manufacture high end duplex board cartons, shippers and printed corrugated box.
| 1 | Setting up new facility for manufacturing high end duplex board cartons, shippers and printed corrugated box in Gujarat. | Rs 3194.27 lakhs |
| 2 | Augmenting long term working capital requirement | Rs 495.82 lakhs |
| 3 | General Corporate Purposes | XX |
| 4 | Issue Expenses | XX |
Financials
The company’s sales have grown from Rs 33.82 crs in the year ended March 2009, to Rs 46.94 crs in the year ended March 2010 and Rs 43.59 crs in the nine months ended December 2010. The company had made a small loss in the year ended March 2009. The net profit after tax in 2010 was Rs 1.65 crs and in the nine months ended December 2010 was Rs 1.71 crs.
| Rupees in Lacs | |||
| year 2009 | year 2010 | 9 months | |
| Dec-10 | |||
| Net Sales | 3387.34 | 4649.85 | 4381.7 |
| Other Income | 4.33 | 13.71 | 26.07 |
| Total Sales | 3382.42 | 4694.62 | 4358.8 |
| Cost of traded goods | 1307.42 | 1806.14 | 950.07 |
| Interest Expenses | 363.23 | 385.44 | 436.73 |
| Profit Before Tax | 6.39 | 274.85 | 290.67 |
| Net Profit After Tax | -1.52 | 165.76 | 171.17 |
It is important to note two things in the sales table given above. The first is the cost of traded goods and second is the interest payment made by the company. It is significant and the company is substantially leveraged for the existing project. The interest cost is significant and the capacity utilisation is significantly high not leaving any scope for improvement in the performance on existing business.
The EPs on pre-ipo capital was Rs 1.21 for March 2010 and on a nine months annualised basis for December 2010 was Rs 1.67 per share. IF the same is calculated on a fully diluted basis the EPS for March 2010 was Rs 0.62 and on an annualised basis for the nine months ended December 2010 was Rs 0.85. Based on this EPS the share is being offered at an extremely expensive 37.64 times at the lower price band of Rs 32 and 41.17 times at the upper end of the price band of Rs 35.
Valuations
The company has chosen to compare itself with Bilcare Limited, Hindustan Tin Works Limited, TCPL Packaging Limited and Uflex Limited. The comparison is improper as Bilcare is in the business of Aluminium foil which is used in the pharmaceutical business. Similarly Hindustan Tin as the name suggests is in tin manufacture and Uflex Limited is in polyester film and has nothing to do with cartons which Paramount is into. The closest competitor is TCPL who had sales of Rs 188.45 crs in the year ended March 2010 and in nine months of the current year has recorded sales of Rs 174.13 crs. Its net profit was Rs 4.43 crs in the year ended March 2010 and Rs 4.7 crs in the nine months ended December 2010. The equity of the company TCPL is a mere 83.5 lakh shares.
Very clearly there is no way one can justify such valuations for such a competitive business.
Conclusion
The company is catering to marquee clients but that is hardly any reason to be able to justify such absurd valuations. It appears there is likely to be speculative activity in this share on listing. It has now become a practice for small companies coming to the market to have more than required levekl of speculative activity, which is ultimately a death trap for retial investors.
I believe it makes no sense to apply in the company which is extremely overpriced and leaves little room for any appreciation. Investors must resist the attraction of speculative activity which is normally linked with such small issues.
SEBI Disclaimer: – I do not intend to subscribe to the above issue.
