Polymac IPO: Should you subscribe?

IPO scan by VS Fernando

Even while many a blue chip is currently having price-earning multiples in single digits, almost all the IPOs managed by the Kolkata-based investment banker, Guiness Corporate Advisors, are commanding incredible discounting offering fabulous returns. How do these lesser known entities sustain such an absurd P/E multiples when they do not have credible earnings to speak about? Guiness’ market-making skill may perhaps attract some high net worth investors towards their latest offering, Polymac Thermoformers Ltd. But, does Polymac deserve public investment?The 13-year-old Polymac is making a fresh issue of 22 lakh shares of Rs 10 each at a price of Rs 35 a piece aggregating to Rs 7.7 crore. Of the issue proceeds, Rs 4 crore is proposed to be spent on the company’s expansion-cum-modernization, Rs 2 crore is earmarked for working capital and Rs 1.1 crore is reserved for brand building & general corporate purposes. However, the funding plan has not been appraised by any external agency.

The company reportedly has 18 machines to manufacture disposable plastic glasses, cups, bowls etc and now intends to expand and modernize its manufacturing facility in Hoogly District of West Bengal thereby increasing the capacity from 72 MT/per month to 162 MT. The IPO would enhance the company’s equity capital from Rs 2.58 cr to Rs 4.78 crore. Nevertheless, the promoters would have an unassuming stake of only 22.4 percent in the enlarged equity.

Originally promoted by Raj Kumar Agarwala in 1999, Polymac was acquired by Puspjeet Kumar (37) - a Chartered Accountant in the year 2001. Interestingly, the promoter remains in the company’s board only in non-executive capacity. The Chartered-cum-Cost & Works Accountant is on the board of 21 other companies but, none of them has a credible financial record to boast about. What’s more intriguing is, a few months before the public issue, the promoter-company has transferred a significant quantity of shares to few private companies which are classified as `public category’ in the offer document! Of the pre-IPO equity of Rs 2.58 crore, more than 58 percent (Rs 1.51 crore) is thus held by 7 closely-held companies whose ownership is not disclosed.

Interestingly, the promoter-director continues to be a director on some of these private shell companies even though their holding is considered as `public stake’. Another interesting aspect is, the so called promoter has been designated as director of Polymac only in 2013 though he claims to have acquired the company 12 years earlier, in 2001. 

While the more qualified promoter-director occupies the board in non-executive capacity, the company has hired a commerce graduate, Shailesh Kumar Mishra (37), as an executive director for just one year. The executive director is also on the board of another 48 closely-held companies! Polymac has two more non-executive directors, Bharat Yadav (32) and Chetan Roy (23), who too occupy the board of many obscure companies. In all the four directors have a collective directorship of 85 companies!

The promoter’s non-commitment is well reflected in the company’s track record. The 13-year-old company has achieved a maximum turnover of only about Rs 3 crore in 2011 which has depleted to Rs 1.85 crore in fiscal 2012 and Rs 1.52 crore in fiscal 2013. In 2009, the company posted a net profit of Rs 2 lakh which turned red in the next two years. In fiscal 2013, the profit was just Rs 18000 against a net worth of Rs 2.67 crore. The company’s operations have resulted in negative cash flows in four out of last five years.

In order to justify the public issue of Rs 7.7 crore, the company seems to have cooked up a modernization and expansion project of Rs 4 crore. While the company is longing for public funds for its growth, the management has diverted nearly Rs 2.9 crore as ‘miscellaneous advance’ to undisclosed parties.  Also, as per the offer document, there is a claim from WBSEDCL for Rs 2.5 crore against which a case is pending in the High Court.