Avoid Plastene India due to volatile business: KM Global
KM Global Finserv has come out with its report on Plastene India Limited's IPO issue. According the the research firm, investors should avoid subscribing to this issue as the underlying business of the company is volatile and the stock has been valued above its listed peers.
KM Global Finserv has come out with its report on Plastene India Limited's IPO issue. According the the research firm, investors should avoid subscribing to this issue as the underlying business of the company is volatile and the stock has been valued above its listed peers.
Plastene India Limited, incorporated in, 1998, was involved in importing plastic scrap and reprocessing it to manufacture agglomerates which were sold to various plastic manufacturers. In 2005, the company ventured into the manufacturing of woven sacks and woven fabrics for servicing the domestic salt, cement and fertilizer industries.The company gradually expanded its product portfolio and started manufacturing FIBC (Flexible Intermediate Bulk Containers), flexible packaging, tarpaulin, multifilament yarn and master batch. In 2007, the company opened its second manufacturing unit in Rajpur village, Gujarat, to primarily manufacture woven bags and FIBC. Currently, the annual manufacturing capacity is 56,200 metric tons, of which 1,200 metric tons was added in FY 2012. The funds will be used for capacity expansion at Nani Chirai & Rajpur and should be completed by April 2013.ConcernsLow Profit Margins - Plastene faces stiff competition from other packaging companies. This is reflected in the PAT margins which have typically ranged from 2 to 4%. Raw material and currency movements add to margin volatility.Clients facing economic slowdown - The companies' key clients are in the fertilizer and cement industries. These are vulnerable to a slowdown in government spending and an economic slowdown.Listed peers trading at a cheaper valuation - Plastene’s peers in the packaging industry are trading at P/E below 5 while Plastene will be listed at a ratio of over 8 times earningsLabour intensive business - The firm employed over 1,800 people and remains vulnerable to rising wage inflationWe recommend that investors avoid subscribing to the IPO of Plastene India as the underlying business of the company is volatile and the stock has been valued above its listed peers.Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment 
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