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Saturday, September 24, 2011

Tijaria Polypipes Limited IPO Analysis Report

Tijaria Polypipes Limited IPO Review
Issue Highlights
Issue size:  Rs. 60,00,000
Issue Type: fixed price band
Market Price: Rs. 60
Face value: Rs. 10
Issue period: 27/92011-29/9/2011
Company and Industry profile
Indian plastic industry is highly fragmented and top 100 players account for only 20% of the turnover and barring 10-15% of the firms most which are medium scale enterprises, rest all companies operate on small scale basis. Indian plastic production capacity per year is 4500 metric tons and out of which 60-70% accounts for the production of polypropylene (PP) and polyethylene (PE) .Indian Polymer industry is growing at 12-15% annually.PET (polyethylene terephthalate ) is good moisture and gas barrier plastic product .Features like clarity, sparkle, toughness, light weightiness, gas barrier properties makes PET a versatile substance. Polyester is the most dominant man-made fiber in India constituting 83% of total fiber consumption in India.
Tijaria polypipes ltd. is a Jaipur base company involved in the manufacturing of high grade plastic based products.
Product portfolio
·         HDPE,LLDPE,MDPE  &PVC  pipes
·         HDPE DWC pipes, PLB HDPE Ducts
·         uPVC rigid and blue casing pipes
·         pet granules
·         Micro/ DRIP irrigation system
·         SWR & PPR pipes
·         HDPE sprinkler system
Major clients of the company are Ramky infrastructure, RK Sales Corporation, JDS trade links, interdependent fruit trades Netherland, APR projects pvt. Ltd. etc.


Installed capacity and production

Existing plants

Risks
1.       Raw material constitutes around 83% of the manufacturing cost and Co. has not entered in any agreement with the raw material suppliers. Any disruption in supply or significant price hike of raw material could be fatal.
2.       Being a smaller company in its genre, it is highly prone to the competition
3.       Profitability shall be badly impacted if crude oil prices surges sharply
4.       As company imports advanced machinery from abroad ,  weakening rupee could  easily  dent the profitability
5.       Slowdown in Indian economy or sharp rise in global commodity prices could adversely affect the revenues and profitability of the company
6.       Top ten customers constitutes up to 70% and 48% of the sales in FY10 and FY11 respectively.
Losing a key customer shall jeopardize the profitability of the company significantly.

Financial analysis #


FY11
FY10
EPS
Rs. 2.95
Rs. 2.85
Book value
Rs. 15.13
Rs. 12.94
Price to book value ratio(P/B)
3.96
4.64
Price to earnings multiple (P/E)
20.34
21.05
ROE (Return on Equity)
19.5%
22%
ROCE( Return On Capital employed)
18.9%
28.4%
Interest cover
5.2
5.63
Profit CAGR
69.3%
121.3 %
PEG ratio
.3
.2
Debt/Equity ratio
.91
.45
OPM (operating profit margin)
8.76%
9.36%
NPM (net profit margin)
5.87%
6.1%
Inventory turnover ratio
13.83
10.18
M-cap/sales ratio
1.2
1.28
M-cap/reserve ratio
6.3
9.52
ROIC (return on invested capital)
19.76
30.11


#
·         Post issue outstanding shares used for the calculation of EPS,BV,ROE,P/E,P/B

Comparison with peer’s #


P/E
ROE %
ROCE  %
NPM  %
Tijaria Polypipes
20.34
19.5
18.9
5.87
Precision pipes
4.36
16.19
21.91
13.12
Finolex Industries
10.35
12.27
12.56
3.83
Kisan
10.55
5.75
9.75
1.28


#
·         Moneycontrol data for peer companies for FY 11
Inference
Post issue Tijaria pipes ltd. shall be trading at price-to-earnings multiple of 20.34 which is much higher than its peer companies which have P/E ratio below 11. P/E ratio of 20.34, especially for a smaller company like this can’t be justified. Company has not given the cash flow statements, and this raises questions on the veracity of the profit being shown in the accounting statements.
Company started a new venture of exporting grapes which is nothing but a weird diversification, and that's why foreign clients like IFT Netherlands finds place in the customers list.
If we compare it with precision pipes which is available at much cheaper valuations and if we calculate fair price of Tijaria polypipes (on the basis of price to earnings multiple of precision pipes) then it comes not more than Rs. 12.
In simple words issue is highly overpriced, and stay away from it.

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