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Tuesday, September 6, 2011

PG Electroplast Limited (PGEL) IPO Analysis Report

PG Electroplast Limited (PGEL) IPO Review
PGEL is entering the capital market with its public issue of 57,45,000 equity shares each of the face value  Rs. 10 within the price band of Rs 190 to Rs. 210. The issue which shall raise Rs. 121 crore at the upper price band, opens on September 7,2011 and shall close on September 12,2011.The issue shall constitute 35% of the post issue fully diluted paid-up capital of the company.
Lot size for the issue is 30 shares and retail investor can bid for 31 lots (Rs.1,95,300). Shares of this company shall list on both BSE and NSE exchanges.
The main purpose of the issue is loan repayment and expansion of its manufacturing units at Greater Noida and Pune.
Concentrated customer base (only 5 customers contributed for 94% of the sales) and high working capital requirement are concerns for the company.
About Company & the Industry
Electronics goods production in India has grown at 16% annually over the period FY 04-09 and is estimated to be worth 20 billion dollar, and around 80% of  this productions gets consumed domestically and rest 20 % is exported.
PGEL operates in EMS (Electronics Manufacturing Services) industry and is a provider of OEM (Original Equipment Manufacturer) of consumer electronics products like color TV sets and components, AC sub assemblies, DVD players ,CFLs (for third parties)etc. Company also makes PCB (Printed Circuit Boards) apart from plastic injection molding work.
PGEL has got manufacturing facilities at Greater Noida (UP) and Roorkee (Uttarakhand) and with the help of issue proceeds it is supposed to set up 2 new manufacturing units at Pune and Greater Noida.
Financial Analysis

FY 10 *
6.2 Rs.  #
Book Value
16.87 Rs. #
P/E Ratio
33.87 #
P/B Ratio
12.44 #
ROE (Return on Equity)
36.75% #
ROCE (Return on Capital Employed)
Interest Cover
Debt/Equity Ratio
.97 #
PEG(Net Profit)
NPM (Net Profit Margin)

# Post issue equity considered
*Upper Price band of Rs. 210 was considered for the calculations
Post issue (at the upper price band of Rs. 210), the issue shall be trading at the P/E multiple above 33 which is very high in comparison with established players like Videocon Industries and Mirc Electronics with the Price-to-Earnings multiple below 10.
What amazes me that the company despite being a smaller one does not provide FY 11 financial data in the prospectus, which might be carrying some intriguing facts. Interest cover indicates that company is finding difficulty in paying the interest due.
Concentrated client base could be fatal in case of client attrition.48% of the revenue comes from the promoter run entities which open the room for the possible books manipulation.
 Four year net profit CAGR of 88%  raises the questions on the veracity of the financial statements, especially during  the global recession of year 2008 company shows almost doubled net profit.
Value investors should avoid this issue as it is highly overpriced and the financial credentials of this company are doubtful. In past too, we have seen how investors have lost money in operator driven issues. Investment In the hope that operators shall rig the price of shares, is a folly. In short, value investors are advised to stay away from this issue.


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