TULSI EXTRUSIONS: No Head Room

Tulsi Extrusions’ valuations are comparable with that of its peers. So, there’s hardly any upside left for investors

COMPANY: TULSI EXTRUSIONS ISSUE SIZE: Rs 45.6-48.45 CRORE PRICE BAND: Rs 80-85 DATE: FEBRUARY 1-5, ’08

TULSI EXTRUSIONS (TEL) is a Jalgaon-based PVC pipe manufacturer. The company has come out with an initial public offer (IPO) to raise over Rs 45 crore to fund its expansion projects, as well as long-term working capital needs. Approximately 60% of these IPO funds will be used for the expansion project to increase the company’s PVC pipes capacity by 70% and add new products such as polyethylene pipes and fittings. The remaining proceeds will be utilised to set up branch offices, meet working capital requirements and for other general purposes. Although the demand for PVC pipes in India is growing rapidly, the pricing of the IPO appears aggressive. Investors can consider skipping the IPO.

BUSINESS: With the acquisition of three associate companies in the past 12 months, TEL has a total PVC pipes and fittings capacity of 10,483 tonne per annum. The company markets its products under the brand name ‘Tulsi’ in Maharashtra, Madhya Pradesh, Chhattisgarh, West Bengal and Rajasthan through a network of 867 dealers. TEL’s products are suitable for agriculture, transportation of potable water, sewerage and drainage systems, construction and telecom industries. It has entered into a joint venture agreement with an associate company in South Africa to expand the geographical reach of its business. It also plans to set up a 1.5-mw wind power generation project at a capital cost of Rs 10 crore to meet its captive energy needs.

GROWTH DRIVERS: Plastic pipes continue to capture an increasing market share from conventional steel pipes. TEL’s expansion project is expected to come on stream by the end of July ’08, which will drive up economies of scale. With higher production, the company will be able to widen its geographical presence.

FINANCIALS: During the first eight months of FY08, TEL achieved a net profit of Rs 4.7 crore on net sales of Rs 36.8 crore. Its operating margins were substantially higher at 20.4%. The company’s net sales, which have been growing at a compounded annual rate of 72% since FY03, touched Rs 59.2 crore in FY07, while net profit witnessed a CAGR of 62% during the same period.
TEL’s operating cash flows have been negative during three of the past four years, as well as during the eightmonth period ended November ’07. It has witnessed an increase in borrowed funds over the past few years. However, its debt-equity ratio has reduced to 0.9 for the eight-month period ended November ’07 from 2.5 as on March 31, ’06 and 1.29 as on March 31, ’07.

VALUATIONS: After the current IPO, TEL’s equity capital will increase to 1.25 crore equity shares of Rs 10 each. Considering this postissue equity, the annualised earnings per share for the eight-month period ended November ’07 work out to 5.7.
As a result, the P/E multiple stands between 14.1 and 15 at the lower and upper price band, respectively. TEL’s valuations are comparable with that of its peers in the plastic products industry, such as Astral Polytechnik, Finolex Industries, Nilkamal and Supreme Industries. As a result, there is hardly any upside left for investors.