Euro Multivision IPO Analysis

Investors can refrain from subscribing to the Initial Public Offering of Euro Multivision (Euro). Lack of track record in the photovoltaic business, competition from larger players in this business and the delays in commissioning the project, suggest that it may be better for investors to adopt a ‘wait and watch’ approach before taking exposure in the company. The company’s current operations are centred around manufacturing compact disk recordables (CDR) and digital versatile disk recordables (DVDR) . At the upper end of its price band of Rs 75, the company is expecting to raise Rs 62 crore.

Euro Multivision hopes to bridge the funding gap for its Rs 178-crore photovoltaic or PV (solar) cell manufacturing with a capacity of 40MW in Gujarat through the IPO proceeds. The company has also tied up with banks to raise about Rs 100 crore to part-fund this project. The company expects to start commercial operations by January 2010.
CD and DVDR business

During the period 2006-08, sales grew 47 per cent compounded annually but has seen some moderation in 2008-09. Eurovision’s sales depend completely on CD/DVD (digital versatile disc recordables) business. It is the second largest manufacturer of CD/DVD in India (after Moser Baer) with a production capacity of 18 crore CD and DVD units. The operating margin in 2007-08 was as high as 34 per cent. Its strong distribution network, coupled with some revival in PC sales, may boost DVD and CD sales for the company.

Euo’s business carries substantial uncertainties, with falling realisations and a high risk of obsolescence, with superior technologies such as BlueRay, HD-DVDs, USBs threatening its market share. There is also an increasing threat in the form of the grey market and inexpensive storage devices.

The high levels of technology innovation are also leading to shrinking product life-cycle of the current products. This business may also call for periodic investments in upgrading manufacturing facilities, which would involve more capex.
Photovolatic business

While there is a huge demand for renewable energy on the back of the Kyoto Protocol, investments in this stock can be postponed till the company commissions its capacities and acquires clients for its photovoltaic cells.

Developed counties such as Germany, Spain and other European nations have taken major steps towards reducing emissions by incentivising non-renewable energy, which has led to the entry of large industry houses, including Reliance, Tata, Videocon and Moser Baer into this business. The company’s proposed project size at 40 MW appears small in scale compared to rivals such as Moser Baer,

Tata BP Solar and Webel-SL Energy have scaled up and have a cell manufacturing capacity of 80 MW, 52 MW and 10 MW respectively, with further plans to augment their respective capacities to 240 MW, 180 MW and 100 MW respectively. In this situation, acquisition of clients is a challenge and may pressure the company’s margins.

The SEZ status which the company enjoys for this project is also not a unique advantage as some of the other semi-conductor makers enjoy it too. Euro Multivision has already faced a delay in the setting up of its project, with the original deadline of January 2009 pushed forward by nearly a year.

Any further delay beyond January 2010 — as the company is waiting for various regulatory approvals and is yet to place orders worth Rs 40 crore (forms 22 per cent of the total project cost) for commissioning of the plant — may affect the payback of the company.

Issue details

The company is issuing 8.8 crore shares at a price band of Rs 70-75; the issue opens on September 22 and closes on September 24.

via BL