Rajshree Polypack Ltd. (RPPL) that entered in plastic packaging products a decade back is now one of the leaders in manufacturing of rigid plastic sheets and thermoformed packaging products (As per CARE Advisory Report – July 2018).
BUSINESS
The company manufactures customized plastic thermoformed packaging products which are tailored to the client’s requirements for products like yoghurt & ice cream containers, food packing, QSRs, coffee cups, bakery products and confectioneries, beverage cups & containers, generic bowls, punnets & trays for fruits and vegetable packing, lids etc.
It has a wide range of sizes and designs to meet the customers’ need.
With an annual capacity of over 10,000 MT and more than 100 products, company is fundamentally committed to the ongoing technical advancement, whilst aiming to stay updated on the technology used in its business.
RPPL has a diversified range of products that cater to the dairy, beverages, FMCG, QSR, retail, pharmaceuticals and the electronics sector.
ISSUE
To part finance its plans to set up Factory Unit IV at Daman and general corpus fund needs, RPPL is coming out with a maiden IPO of 2960000 equity shares of Rs. 10 each via book building route.
It has fixed price band of Rs. 119-Rs.121 per share. RPPL mulls mobilization of Rs. 35.22 cr. to Rs. 35.82 cr. (based on lower and upper price bands).
Issue opens for subscription on 10.09.18 and will close on 12.09.18. Minimum application is to be made for 1000 shares and in multiples thereon, thereafter.
Post allotment shares will be listed on NSE SME Emerge. Issue constitutes 26.35% of post issue paid up capital of the company. Issue is solely lead managed by PL Capital Markets Pvt. Ltd.
(Prabhudas Lilladher Group) and Link Intime India Pvt. Ltd. is the registrar to the issue. Issue provides reservation of 49.96% for QIBs (1405000 shares), 15% for HNIs (422000 shares) and 35% for retail (985000 shares).
Having issued initial equity at par, it raised further equity in the price range of Rs. 25 to Rs. 167.55 per share between January 2012 and August 2018.
(It did pre-IPO placement at Rs. 120 per share in August 2018 for 297939 shares). It has also issued bonus shares in the ratio of 2 for 1 in November 2016.
Cost of acquisition of shares by the promoters is Rs. 12.53, Rs. 12.57 and Rs. 27.68 per share. Post issue, RPPL’s current paid up equity capital of Rs. 8.27 cr. will stand enhanced to Rs. 11.23 cr.
FINANCIAL
On performance front, for last four fiscals, RPPL has posted turnover/net profits of Rs. 65.06 cr. / Rs. 0.72 cr. (FY15), Rs. 95.66 cr. / Rs. 7.83 cr. (FY16), Rs. 96.43 cr. / Rs. 8.87 cr. (FY17) and Rs. 112.50 cr. / Rs. 9.31 cr. (FY18).
For last three fiscals it has posted an average EPS of Rs. 11.21 and an average RoNW of 21.60%. Issue is priced at a P/BV of 2.05 on the basis of its NAV of Rs. 58.91 as on 31.03.18.
If we consider FY18 earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 14.6 and appears reasonably priced.
Company’s client base includes Amul, Hind Unilever, Nestle, Britannia, Danone, Mother Dairy, Tata Tea, Kinder Joy, Vadilal etc.
However, recent movement by many states for Plastic/Thermo product ban raises concern. (Email sent for clarification to the company and LM on this and other queries remained unanswered till writing this.)
As per offer documents, it has considered Mold-Tek Packaging (though it is not comparable strictly) as its listed peers that is currently trading at a P/E of around 30. (As on 31.08.18).
On merchant banker’s front, it has not handled any IPO in last three years and hence no track records for recent listings.
However, its past record is very poor with many companies have eroded investors wealth drastically before being suspended from trade. (Some of them are Raj Oil, Astral Coke, Resurgere Mines, Rishabhdev Tech that are currently suspended from trading).
CONCLUSION
Company’s financial performance is lucrative, but concern is about ongoing controversy on usage of plastic ban movement. More states are joining the bandwagon.
Thus it is a major risk for this company going forward. Future of such companies hinges on outcome of Government’s final ruling. Although pricing looks lucrative, cash surplus investors may consider investment for long term. (Subscribe for long term).
