IPO Talk: Tulsian reviews Flexituff, PG Electroplast

Excerpts from Bazaar on CNBC-TV18 Watch the full show »

SP Tulsian of sptulsian.com reviewed two recent IPOs- Flexituff and PG Electroplast . He also gave reading and outlook for these stocks. 

Below is the the edited transcript of Tulsian's interview with CNBC-TV18. Also watch the accompanying video.

Q: What do you make of Flexituff - good, bad, ugly would you subscribe?

A; I would say it is that bad and ugly and I won't subscribe. We have heard the management talking about the financial performance of the company. Any industry will go for expansion when they are making very good profits. Either they have the capacity constrain or they have the new products likely to get introduced in the product profile.

For FY10 they had a PAT margin of less than 2%. I can understand the increase in the top-line of the company may be because of their new Kashipur plant going on stream. The moment this company approached the capital market their PAT margin improved to from less than 2% to 5% plus. This is just a way to decorate your financials and then present it.

The tax benefit enjoyed by the company has been huge and will come to an end by FY14. Still the company has this kind of profitability and margins that may be the reason why Clearwater Capital have opted to exit 50% at this stage.

There are many companies operating in pipe and flexible packaging space but the profitability of this company when compared to others is not exciting at all. For FY11 an EPS of Rs 20 on old equity, PE multiple of 7.5 to 8 cannot gel well and I don't think prices can sustain even if it is discovered at a lower end.

Q: What have you made of the way PG Electroplast has been moving and what kind of price do you think it should settle into?

A: Unfortunately, I sometimes feel that the field of primary market has been left open by the regulator, any one can come and loot. You need to chalk out the amount one wants to loot from this market.

Yesterday, we have seen an auction of 210,000 shares. Even in NSE and BSE we have seen auction happening at 530 and 580. If one takes the differential of about Rs 300, loss of Rs 6 crore has been caused. The names of operators, merchant bankers are all known but still they don't come into the notice of regulator or the stock exchanges.

The company makes electronic products. In FY09 they had PAT margin of less than 1%, in FY10 the margin rose to 2%, in FY11 margin rose to 4% so they have a set pattern of presenting financials. Decorated well and packaged well before the promoters and presented to the public.

I would take a final price of not more than Rs 50. This is because if you compare this company with Value Industries the later is ruling at a price to book of 0.15 PE multiple of 4 times. Value Industries is a Videocon Group, it has exactly the same product and has 3-4 times more top-line.

If you give the same multiple and comparison I do not think that share deserves a valuation of more than Rs 50. We are bound to see that price. It only depends when the operator will exit from the entire stock which he has corned in the IPO so probably till that time the price will hold or otherwise it is bound to get corrected to Rs 50 level.