Given 20 Microns’ expansion plans and likely boost in profitability, investors can subscribe to the IPO with a long-term outlook
COMPANY: 20 MICRONS
ISSUE SIZE: Rs 21.8-23.9 CRORE
PRICE BAND: Rs 50-55
DATE: SEPTEMBER 8-11, ’08
20 MICRONS is a Gujarat-based producer of micronised industrial minerals that are used in a variety of industries . Through this IPO, the company plans to raise around Rs 9 crore to fund its expansion. Meanwhile, Gujarat Venture Capital Fund (GVCF), which currently holds 43% stake in the company, will offload a part of its holding, reducing it to 19% of the post-issue equity. Since the company’s products enjoy wide acceptance among industry leaders, a successful implementation of the proposed projects can boost its future profitability. Long-term investors can consider this IPO.
BUSINESS:
20 Microns is one of the pioneers in micronised and ultrafine minerals from 20 to 2 microns particle size. The company has set up eight plants supported by four mines in the western, northern and southern parts of India. It currently produces finer grades of minerals such as calcium carbonate, talc, kaolin, dolomite, barites and mica, which are used in industries like paper, paints, plastics, pharmaceuticals, cosmetics, rubber, ceramics and construction materials. The company’s clientele includes all paint companies, including Asian Paints and Kansai Nerolac; plastic processors such as Supreme Industries and Finolex Industries; as well as ceramics producers like Euro Ceramics and H&R Johnson.
During ’03-04, the company was adversely affected by the Bhuj earthquake and was referred to the corporate debt restructuring (CDR) cell. Subsequently, it turned around in FY07 and was allowed an exit from CDR. The company has set up a well-equipped R&D centre in Vadodara for product and process innovation.
20 Microns has embarked upon an expansion plan under which it will set up a 7,000 tpa talc processing unit in Haldwani. Similarly, a 12,000 tpa capacity will be added at its existing 5,000 tpa Udaipur facility. The specialty chemicals capacity at Vadadla will be doubled to 4,800 tpa and a separate 4,600 tpa wet grinding unit will be set up. Similarly, an addition of 12,000 tpa will be made to the existing 26,400 tpa calcined clay plant in Bhuj and 3,000 tpa will be added at Tirunelveli. Apart from the proceeds of the current IPO, the company will avail of a loan of Rs 10 crore to finance these projects to be completed by March ’09.
GROWTH STRATEGY:
The company wants to focus on high-value specialty minerals, which will improve its margins. The current capacity expansion project will add 42% to 20 Microns’ existing capacity of 96,400 tpa. The company, which currently operates just 72 hectares of mines, has applied for nearly 1,000 hectares of mining area. These initiatives should help the company to boost its revenues and profit margins.
FINANCIALS:As on March 31, ’08, the company was carrying a gross block of Rs 76 crore, with shareholders’ funds of Rs 28.4 crore. With outstanding loan at Rs 46.5 crore, its debt-equity ratio stood at 1.6. Over the past three years, 20 Microns has witnessed an improvement in its operating margins, which currently stand at 14.1%. The company posted sales growth of 23% to Rs 107.4 crore in FY08, of which, 36% represented traded goods. Depreciation and interest costs together accounted for nearly 9% of the sales. The resulting pre-tax profit was 34% higher at Rs 6.2 crore and PAT rose by 29% to Rs 4.6 crore. VALUATIONS: At the higher end of the IPO price band, the scrip is priced 16.9 times its FY08 earnings. We expect the company to post 30% revenue growth in FY09 with operating margin of 16%. It is likely to post EPS of Rs 4.7 for FY09. The higher price band of Rs 55 works out to 11.7 times the company’s expected earnings of FY09. This is comparable to the current valuations enjoyed by its listed peers. Ashapura Minechem is trading at a P/E of 7.2, Gujarat Mineral Development at 12.1, while NMDC and recently listed Resurgere Mines & Minerals are trading at substantially higher P/E multiples of 34.3 and 22.1, respectively.
COMPANY: 20 MICRONS
ISSUE SIZE: Rs 21.8-23.9 CRORE
PRICE BAND: Rs 50-55
DATE: SEPTEMBER 8-11, ’08
20 MICRONS is a Gujarat-based producer of micronised industrial minerals that are used in a variety of industries . Through this IPO, the company plans to raise around Rs 9 crore to fund its expansion. Meanwhile, Gujarat Venture Capital Fund (GVCF), which currently holds 43% stake in the company, will offload a part of its holding, reducing it to 19% of the post-issue equity. Since the company’s products enjoy wide acceptance among industry leaders, a successful implementation of the proposed projects can boost its future profitability. Long-term investors can consider this IPO.
BUSINESS:
20 Microns is one of the pioneers in micronised and ultrafine minerals from 20 to 2 microns particle size. The company has set up eight plants supported by four mines in the western, northern and southern parts of India. It currently produces finer grades of minerals such as calcium carbonate, talc, kaolin, dolomite, barites and mica, which are used in industries like paper, paints, plastics, pharmaceuticals, cosmetics, rubber, ceramics and construction materials. The company’s clientele includes all paint companies, including Asian Paints and Kansai Nerolac; plastic processors such as Supreme Industries and Finolex Industries; as well as ceramics producers like Euro Ceramics and H&R Johnson.
During ’03-04, the company was adversely affected by the Bhuj earthquake and was referred to the corporate debt restructuring (CDR) cell. Subsequently, it turned around in FY07 and was allowed an exit from CDR. The company has set up a well-equipped R&D centre in Vadodara for product and process innovation.
20 Microns has embarked upon an expansion plan under which it will set up a 7,000 tpa talc processing unit in Haldwani. Similarly, a 12,000 tpa capacity will be added at its existing 5,000 tpa Udaipur facility. The specialty chemicals capacity at Vadadla will be doubled to 4,800 tpa and a separate 4,600 tpa wet grinding unit will be set up. Similarly, an addition of 12,000 tpa will be made to the existing 26,400 tpa calcined clay plant in Bhuj and 3,000 tpa will be added at Tirunelveli. Apart from the proceeds of the current IPO, the company will avail of a loan of Rs 10 crore to finance these projects to be completed by March ’09.
GROWTH STRATEGY:
The company wants to focus on high-value specialty minerals, which will improve its margins. The current capacity expansion project will add 42% to 20 Microns’ existing capacity of 96,400 tpa. The company, which currently operates just 72 hectares of mines, has applied for nearly 1,000 hectares of mining area. These initiatives should help the company to boost its revenues and profit margins.
FINANCIALS:As on March 31, ’08, the company was carrying a gross block of Rs 76 crore, with shareholders’ funds of Rs 28.4 crore. With outstanding loan at Rs 46.5 crore, its debt-equity ratio stood at 1.6. Over the past three years, 20 Microns has witnessed an improvement in its operating margins, which currently stand at 14.1%. The company posted sales growth of 23% to Rs 107.4 crore in FY08, of which, 36% represented traded goods. Depreciation and interest costs together accounted for nearly 9% of the sales. The resulting pre-tax profit was 34% higher at Rs 6.2 crore and PAT rose by 29% to Rs 4.6 crore. VALUATIONS: At the higher end of the IPO price band, the scrip is priced 16.9 times its FY08 earnings. We expect the company to post 30% revenue growth in FY09 with operating margin of 16%. It is likely to post EPS of Rs 4.7 for FY09. The higher price band of Rs 55 works out to 11.7 times the company’s expected earnings of FY09. This is comparable to the current valuations enjoyed by its listed peers. Ashapura Minechem is trading at a P/E of 7.2, Gujarat Mineral Development at 12.1, while NMDC and recently listed Resurgere Mines & Minerals are trading at substantially higher P/E multiples of 34.3 and 22.1, respectively.
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