Plastene IPO for high risk appetite investors: SMC
SMC Global has come out with its report on Plastene India's IPO issue. According the the research firm, investors with high risk appetite can consider this issue.
SMC Global has come out with its report on Plastene India's IPO issue. According the the research firm, investors with high risk appetite can consider this issue.
Plastene India focuses on maintaining and establishing longterm relationships with its customers; its customers are some of India's leading players in cement, fertilizers, salt, edible oil, food grains, sugar, rice industry to name a few. Its diversified customer base has helped the company in introducing new products thereby expanding its product portfolio and consequently to expand into new markets such as Europe, U.S., U.K., Canada etc.Distributorship from IOCL for supply of PP / HDPE / LLDPE granules: The Company is the distributors for Indian Oil Corporation Limited (―IOCL ||) in Kutch and Saurashtra region of Gujarat for supply of PP / HDPE / LLDPE granules.Integrated plastic packaging manufacturer: The Company is one amongst the few players in the plastic packaging industry to have backward integration facilities. It itself manufactures UV masterbatch, Antifab masterbatch, multi filament yarn and webbings which are used in the manufacturing of its final products.Modern technology: The Company uses modern machineries and technologies imported from Austria, Switzerland, U.S., etc in its manufacturing unit, which help them to reduce material gauze variations in the products and obtaining better quality finished products. Quality Assurance: The Company assures standard quality. The quality assurance measures taken by the Company include thorough checking of all the raw materials, other inputs and finished goods to ensure quality, statistical methods to identify and analyze areas of improvement, experienced manpower for quality assurance activities, creation of data base for future reference and analysis etc.Research and Development capability: The Company has installed Test-rig and UV testing machine imported from U.S.A. in order to get the best combination of material which are cost effective. Moreover its R&D has dedicated team that focuses on new products development.Strategy
To enhance profitability by supplying products to the end customers: The company intends to enhance it business; so it is planning to set up its representative offices/warehouses in two overseas locations in next two years, which would supply the products directly to the end users thereby helping its customers to implement Just-In-Time (JIT) concept. This will help the company to enhance its customer base in overseas market resulting into higher volume of business and profitability.Valuation
Considering the P/E valuation on the upper end of the price band of Rs 84, the stock is priced at pre issue P/E of 18.32x on its annualised FY11 EPS of Rs 4.59. Post issue, the stock is priced at a P/E of 24.72 on its annualised EPS of Rs 3.40. Looking at the P/B ratio at Rs 84, the stock is priced at P/B ratio of 1.87x on the pre issue book value of Rs 45.02 and on the post issue book value of Rs 55.11, the P/B comes out to 1.52x. On the lower end of the price band of Rs 81 the stock is priced at pre issue P/E of 17.66x on its annualised FY11 EPS of Rs 4.59. Post issue, the stock is priced at a P/E of Rs 23.84 on its EPS of Rs 3.40. Looking at the P/B ratio at Rs 81, the stock is priced at P/B ratio of1.80x on the pre issue book value of Rs 45.02 and on the post issue book value of Rs 55.11, the P/B comes out to1.47x.Outlook
The Company is in the traditional industry of plastic which has low entry barriers with small profit margin. Furthermore, the company is appearing to be midsized player in the plastic segment. Hence, it may be difficult to get healthy profit margin in future. The issue at 24 P/E multiple and 1.52 P/BV seems very richly valued. Investors with high risk appetite can consider this issue.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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