Manjushree Extrusions (MEL), promoted by Vimal Kedia and Surendra Kedia, manufactures specialty plastic packaging products mainly containers and jars for multinational companies in the fast moving consumer goods (FMCG), pharma, food processing and agrochemical sectors. The products include injection/blow moulded polyethylenetelephthalate (PET) / polypropylene (PP) and multiplayer plastic containers manufactured by adopting Japanese and European technologies.
Enjoying a preferred supplier status, MEL’s specialty plastic containers are marketed under brands Polypet, Duraflex and Thermopet to MNCs in the FMCG sector, assuring a consistent market. The company proposes to expand its existing capacity of specialty plastic containers by 10,100 tonnes per annum, to 14,240 tonnes by operating shifts thrice a day. Funds will be raised through public issue, right issue and debt. Commercial production from expanded capacity is scheduled from April 2008.
MEL had come out with an IPO of 42,00,000 equity shares of Rs 10 for cash at a premium of Rs 2.50 per share aggregating Rs 5.25 crore in September 1995 to part finance the project to set up a unit for the manufacture of PET containers. The shares are listed on the Calcutta, Gauhati and the Ahmedabad stock exchanges. However, they are not traded on any of these exchanges.
Now, MEL is mopping funds through a rights-cum-follow-on-public-offer of equity shares aggregating Rs 35.70 crore. It intents to issue 51,26,100 follow-on-offer equity shares of Rs 10 each for a cash premium of Rs 35 per share (i.e., at a price of Rs 45 per share) aggregating Rs 23.08 crore. The rights issue will comprise 42,10,800 equity shares of Rs 10 each for cash at a premium of Rs 20 per share (i.e., at a price of Rs 30 per share) aggregating Rs 12.63 crore in the ratio of one equity share for every one equity share held on 24 December 2007. The term loan of Rs 18 crore will be for 72 months excluding the moratorium period at 13.25% per annum with monthly rests, subject to revision every two years.
Of the Rs 53.70 crore to be raised, Rs 42.14 crore will be utilised to expand and diversify operations by setting up facilities to manufacture specialty plastic containers and PET preforms, Rs 8.70 crore will be used to meet the working capital margin requirement, and the balance to meet issue expenses.
Strengths
The backward integration to preform manufacturing has resulted in cost reduction and value addition.
Only in India with technology to manufacture multi-layer containers finding extensive application in food products (milk and its derivatives, ketchup, fruits, and sauces) and agro chemicals.
Additional capacities of PET / PP are coming up in the petrochemical sector. Hence, steady availability of raw materials will not be problem due to existing tie-up with the major player in the petrochemical industry at a competitive price.
Weakness
Has negative cash flows from operating activities in the half year ended September 2007, resulting in heavy indebtedness. The debt-equity ratio stood at 1.88 end September 2007.
Operates in a highly competitive industry.
Valuation
MEL has set a price Rs 45 per equity share of Rs 10 face value. At Rs 45 per share, the P/E would be 14.5x times annualised EPS of Rs 3.1 for the nine months ended December 2007 and 21.4x times the EPS of Rs 2.1 for the financial year ended March 2007. In the plastics industry, comparable companies such as Hitech Plast, Pearl Polymers and Wimplast have TTM P/E of around 18.7, 22.2 and 26.8 times, respectively.