Investors can consider subscribing to the initial public offer by Ruchira Papers. The company, which has been riding the boom in the textile industry, plans a foray into the writing and paper business, which is in a growth phase.
Valuations appear moderate, even on an expanded equity base. The high leverage proposition that the company has adopted, however, is a cause for concern.
Kraft Paper
Ruchira Papers' manufactures kraft paper, which is largely used by the packaging industry.
The company has recorded a commendable 16 per cent revenue growth over a four-year period, which appears to have been contributed by the textile industry boom. Kraft paper is used in the fabric and yarn industries.
With a slowdown of capacity additions in the textile industry revenue growth from this segment is expected to be sluggish in the medium term. The company operates in a raw-materials intensive business, with inputs accounting for about 74 per cent of operating costs. The company enjoys locational advantages as it is situated near the hub of agricultural activity.
Though operating margins have been on the decline, falling prices of caustic soda are expected to ease the pressure.
Writing and Printing Paper
The company plans to foray into the writing and printing paper segment, which is on an uptrend.
With the governments focus on education and scope for improvement in literacy levels, revenue growth prospects appear to be bright. The company proposes to use the same line of inputs that it uses for its kraft paper business — agri-waste.
Ruchira Papers plans to set up a 33,000-tonne facility at its existing site in Himachal Pradesh and plans to commence commercial production in the middle of FY-08. The company plans to sell the size — free paper to local players in the notebooks business.
Offer Details
Ruchira Papers plans to raise Rs 23.5 crore from the public by offering shares in a price band of Rs 21-23.
The promoters would also chip in, taking the total proceeds from the offer to Rs 28.5 crore. The company plans to set up a paper and chemical recovery plant and a 6-MW captive power plant.
The company plans to meet a substantial part of its project by raising debt to the tune of Rs 94 crore.
Punjab National Bank and A.K. Capital Services are the mangers to the offer, which opened on November 23, and closes on November 29.