Emmbi’s success depends upon how fast it can develop the market for its innovative products. Although risky, investors may consider the IPO
EMMBI Polyarns, a manufacturer of woven polymer products, is raising nearly Rs 40 crore through an initial public offer of equity shares. The funds will be used to increase its production capacity three-folds by the end of 2010. The company has developed some innovative products in the areas of geo-textiles and water conservation. Post issue, the stake of the promoter group would fall from 100% to 45%.
Long-term investors with risk appetite may consider subscribing to the issue. Risk-averse investors should wait another couple of quarters to check the company’s earnings growth before taking a call.
BUSINESS:
Set up in 1994, Emmbi Polyarns (EPL) is promoted by first generation entrepreneurs of Appalwar family. The company has set up a manufacturing facility in Silvassa for woven polymer packaging products such as, flexible intermediate bulk carriers (FIBC or Jumbo Bags), woven sacks primarily used in industrial packing and other similar products like container liners, canal liners, flexi tanks, car covers and protective irrigation system.
The company tripled its exports in three years to Rs 22.5 crore in FY09. The export growth helped EPL boost its topline and bottomline growth, while its domestic sales stagnated. Its domestic customers for packaging products include Hindustan Unilever, ITC, Godrej Industries and Tata Chemicals, besides others. The company typically works on monthly supply contracts with its industrial clients and takes 65 days on average to collect outstanding credit sales.
GROWTH DRIVERS:
The company’s products in water conservation including pond liners, canal liners, and flexi tanks are all lowcost alternatives for the farmers. These products may find great demand in the domestic market with rising concerns over water management. The company has also developed specialty packaging materials such as paper or aluminiumlined packaging or anti-corrosive packaging for specific uses in tea, cement or automobile industries. Usage of disposal bags for asbestos, nuclear or hospital waste is well accepted in overseas markets and is likely to find increasing demand domestically. The added capacities will come handy in catering to rising demand for the company’s packaging as well as innovative products.
FINANCIALS:
In the last four years the company’s net sales grew at a cumulative annual growth rate (CAGR) of 36.7%, while the net profit grew at 42%. The company has consistently expanded its operating profit margins from 8.5% in FY05 to 13% in FY09 and 14.1% in the first half of FY10. EPL’s reported profit in the first half of FY10 at Rs 1.2 crore is 89% of the profit for whole of FY09. EPL’s current debtequity ratio stands very high at 2.4 but will fall below 0.5 post the IPO. The company’s operating cash flows were negative in two out of last five years.
VALUATIONS:
The annualised earnings for FY10 will translate in an EPS of Rs 1.4 on post issue equity of Rs 17.4 crore. The issue price is 28.6 to 32.1 times the EPS on lower and upper bands, respectively. P/Es of companies in similar business such as Jumbo Bag, Karur KCP, and Jai Corp form a wide range of 5-95.
CONCERNS:
Although the company’s products are innovative the concept selling and brand building will take time. Being a familymanaged small company the project execution and managing increased complexities of the business have their own inherent risks.
IPO details:
Price Band: Rs 40-45 per share
Net issue size:
Rs 38.3-43.1 crore
Date: Feb 1 - 3
EMMBI Polyarns, a manufacturer of woven polymer products, is raising nearly Rs 40 crore through an initial public offer of equity shares. The funds will be used to increase its production capacity three-folds by the end of 2010. The company has developed some innovative products in the areas of geo-textiles and water conservation. Post issue, the stake of the promoter group would fall from 100% to 45%.
Long-term investors with risk appetite may consider subscribing to the issue. Risk-averse investors should wait another couple of quarters to check the company’s earnings growth before taking a call.
BUSINESS:
Set up in 1994, Emmbi Polyarns (EPL) is promoted by first generation entrepreneurs of Appalwar family. The company has set up a manufacturing facility in Silvassa for woven polymer packaging products such as, flexible intermediate bulk carriers (FIBC or Jumbo Bags), woven sacks primarily used in industrial packing and other similar products like container liners, canal liners, flexi tanks, car covers and protective irrigation system.
The company tripled its exports in three years to Rs 22.5 crore in FY09. The export growth helped EPL boost its topline and bottomline growth, while its domestic sales stagnated. Its domestic customers for packaging products include Hindustan Unilever, ITC, Godrej Industries and Tata Chemicals, besides others. The company typically works on monthly supply contracts with its industrial clients and takes 65 days on average to collect outstanding credit sales.
GROWTH DRIVERS:
The company’s products in water conservation including pond liners, canal liners, and flexi tanks are all lowcost alternatives for the farmers. These products may find great demand in the domestic market with rising concerns over water management. The company has also developed specialty packaging materials such as paper or aluminiumlined packaging or anti-corrosive packaging for specific uses in tea, cement or automobile industries. Usage of disposal bags for asbestos, nuclear or hospital waste is well accepted in overseas markets and is likely to find increasing demand domestically. The added capacities will come handy in catering to rising demand for the company’s packaging as well as innovative products.
FINANCIALS:
In the last four years the company’s net sales grew at a cumulative annual growth rate (CAGR) of 36.7%, while the net profit grew at 42%. The company has consistently expanded its operating profit margins from 8.5% in FY05 to 13% in FY09 and 14.1% in the first half of FY10. EPL’s reported profit in the first half of FY10 at Rs 1.2 crore is 89% of the profit for whole of FY09. EPL’s current debtequity ratio stands very high at 2.4 but will fall below 0.5 post the IPO. The company’s operating cash flows were negative in two out of last five years.
VALUATIONS:
The annualised earnings for FY10 will translate in an EPS of Rs 1.4 on post issue equity of Rs 17.4 crore. The issue price is 28.6 to 32.1 times the EPS on lower and upper bands, respectively. P/Es of companies in similar business such as Jumbo Bag, Karur KCP, and Jai Corp form a wide range of 5-95.
CONCERNS:
Although the company’s products are innovative the concept selling and brand building will take time. Being a familymanaged small company the project execution and managing increased complexities of the business have their own inherent risks.
IPO details:
Price Band: Rs 40-45 per share
Net issue size:
Rs 38.3-43.1 crore
Date: Feb 1 - 3
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