While there are no listed stocks that are in the same business, Midfield's pre-issue P/E of 12.8 (at the lower band) is high
Hyderabad-based Midfield Industries Ltd, a manufacturer and marketer of industrial packaging consumables plans to hit the market on today, 19th July 2010 with its Initial Public Offering. The issue closes on 21 July 2010.
The company is issuing 45 lakh shares at a price band of Rs126-Rs133 per share and plans to raise Rs56.70-Rs59.85 crore depending on the price discovery. The company will use the money for capacity expansion at the existing facilities, to set up new facilities, and to enhance its working capital needs. TIL currently exports to USA, UK, Canada, South Africa, Australia and Middle East countries. Its exports contributed just 3.33% to its total revenues as on 31st March 2010. MIL reported a net profit of Rs8.1 crore on a total income of Rs90 crore in the year ended 31 March 2010. As on 31st March 2010, its earnings per share (EPS) stood at 9.78. It had a total debt of Rs42.32 crore (as on 31st March 2010) and its debt to equity ratio stands was 1.25: 1.
Steel strapping which is its flagship product has contributed 65.21% of its total sales during the financial year FY09-10. Interestingly, TIL has defaulted on a loan of Rs3.50 crore taken from SE Investments Ltd and is yet to pay Rs1.06 crore back.
Based on its FY10 EPS of Rs9.78, MIL’s IPO price is carries a P/E of 12.88 on the lower side of the band and 13.60 at the upper band. Based on the post-issue diluted basis, the P/E comes to 20-21. Brickwork Ratings (BWR) has assigned an IPO ‘Grade 2’ to Midfield Industries Ltd IPO indicating 'below average fundamentals'. Atherstone Capital Markets Ltd is the sole lead book running manager to the issue.
The company provides packaging consumables like high tensile steel strapping in various dimensions and strengths, different seals for different applications, collated nails & corner boards being used for general and the end of line packaging of goods to various industries. Currently MIL caters to industries like steel, aluminum, glass, copper, paper, automobile, white goods and refractory.
MIL operates in a niche segment and has no listed competitive peers. The business is humdrum and there are plenty of players in the unorganised sector selling the same stuff. It competes with the multi national firm ITW Signode India Ltd in operational contracts space. There can be a possibility of its clients preferring polyester strapping over metal strapping. The company has plans to foray in manufacturing of polyester strapping, (poly-propylene) PP strapping, VCI paper and stretch film.
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The company has fixed the price band at Rs 850-985 for the IPO, which is slated to open on 28-07-10. The company is proposing to issue1, 67,91,579 Equity Shares of Rs. 10 FV, including the offer for sale of 93,46,256 shares.
The company earned a net profit of Rs 173.95cr for FY10. On the post issue capital of Rs 71.97cr, the EPS comes to around Rs20/- At the upper price band, the company is demanding a valuation of almost 50 times its FY 10 earnings. For an NBFC, which has limited period of history and no dividend track record, the valuation is very very much stressed.
APART FROM IRRATIONAL PRICING, CONSIDER THE FOLLOWING BEFORE TAKING THE INVESTMENT DECISION:
1. Unethical business: The Company is charging interest around 40% p.a. on money lent to the poor and down trodden.
2. Unsustainable business model: The business model will not sustain in the long -run.
3. No commitment from the promoters: SKS’s founder and chairman sold his shares to Tree Line Asia Master Fund (Singapore) Pte for $12.9 million in Feb. this year.
4. Look at the salary of top executives:
Suresh Gurumani - Managing Director of the Company. The total monthly salary is Rs. 12, 50,000. In addition to the above, Mr. Suresh Gurumani was paid onetime bonus of Rs. 10,000,000, in April 2009.
Dr. Vikram Akula - chairman Rs 70.00 lacs p.a. In addition, ESOP amounting to Rs10.97lacs, totaling Rs 1.79cr p.a.
The irony is they are trying to eradicate poverty.
5. Mohd. Yunus says - “I get very worried when investment funds come to microfinance,” said the founder of Bangladesh’s Grameen Bank, which pioneered the industry by giving small loans to rural women to start their own businesses. “I don’t want to excite businessmen that there is profit to be made here,”
6. The IPO will make the promoters, and other venture capitalists including some P/E funds that have stakes in these companies’ millionaires. The hapless borrowers continue to live in abject poverty.
7. Government /RBI will not be mute spectators to the exploitation.
They are bound to regulate the segment. This will make the business un- attractive.
8. Financial inclusion initiatives taken by the public sector banks/government will marginalize the micro finance business. Do not buy the theories put forth by the BRLMs to sell the issue.
9. The average cost of acquisition of shares by promoters is less than Rs50/-
10. The Andhra Pradesh government has constituted district level ‘Task Force Committees’ (TFCs) to investigate the unethical practices of micro finance institutions in the state. The committees were constituted after the government received many complaints against the loan shark practices adopted by some leading MFI’s of the state.
RECOMMENDATIONS: CLEAR NO.
READ FULL ARTICLE IN - FIRST CHOICEIPOANALYSIS.COM
1. Unethical business: The Company is charging interest around 40% p.a. on money lent to the poor and down trodden.
2. Unsustainable business model: The business model will not sustain in the long -run.
3. No commitment from the promoters: SKS’s founder and chairman sold his shares to Tree Line Asia Master Fund (Singapore) Pte for $12.9 million in Feb. this year.
4. Look at the salary of top executives :
Suresh Gurumani - Managing Director of the Company. The total monthly salary is Rs. 12, 50,000. In addition to the above, Mr. Suresh Gurumani was paid onetime bonus of Rs. 10,000,000, in April 2009.
Dr. Vikram Akula - chairman Rs 70.00 lacs p.a. In addition, ESOP amounting to Rs10.97lacs, totaling Rs 1.79cr p.a.
5. Mohd. Yunus says - “I get very worried when investment funds come to microfinance,” said the founder of Bangladesh’s Grameen Bank, which pioneered the industry by giving small loans to rural women to start their own businesses. “I don’t want to excite businessmen that there is profit to be made here,”
6. The IPO will make the promoters, and other venture capitalists including some P/E funds that have stakes in these companies’ millionaires. The hapless borrowers continue to live in abject poverty.
7. Government /RBI will not be mute spectators to the exploitation.
They are bound to regulate the segment. This will make the business un- attractive.
8. Financial inclusion initiatives taken by the public sector banks will marginalize the micro finance business. Do not buy the theories put forth by the BRLMs to sell the issue.
9. The average cost of acquisition of shares by promoters is less than Rs50/-The Company has limited period of history and no dividend payment record.
10. The Andhra Pradesh government has constituted district level ‘Task Force Committees’ (TFCs) to investigate the unethical practices of micro finance institutions in the state. The committees were constituted after the government received many complaints against the loan shark practices adopted by some leading MFI’s of the state.