Euro Multivison IPO Review

Mumbai based Euro Multivision the second largest maker of CD-R`s and DVD-R`s, has come out with initial public offering (IPO) to raise about Rs 660 million. The IPO, which will open for subscription on Sep. 22, 2009, has price band of Rs 70 to Rs 75 a share of Rs 10 each. The issue will close on Thursday, Sep. 24, 2009.

EML outlays Rs 1,780 million to venture into photo voltaic business by manufacturing solar cells used for generation of electrical energy. The project cost will be funded through issue proceeds, Rs 1,000 million in term loans and internal accruals. It has proposed to build a photo voltaic solar cell manufacturing unit with a capacity of 40 MW per year at its Gujarat unit. It owns 28.75 acres of land for the SEZ purposes. It has also started construction work of the plant.

The renewable energy industry presents bright long term future given the kind of global thrust for renewable energy and domestic market potential. The availability of Special Economic Zone (SEZ) and brand recognition in the existing CDR/DVDR market will also benefit the company.

However, the delay in photo voltaic project execution, high debt-equity ratio (6:1), small scale of existing operations, reducing margins in the existing business, uncertain export market conditions and slowdown in IT sector are causes of worry.

In addition, the moderate corporate governance, substitution risk from other renewable sources of energy, capital intensive nature of business and lack of long-term arrangements for sourcing raw material are also a matter of concern.

Independent investment advisor, SP Tulsian said that solar cell business is high technology and high capital intensive, where, even established and large players are finding it difficult to succeed. Even Reliance Industries have been talking to foray in this but not yet done any headway and Moser Baer is struggling to succeed.

via IRIS
The financials of the company are also not so impressive. Analysis revealed sharp drop in revenues and operating margins resulted in 81.15% y-o-y plunge in FY09 net profit to Rs 18.3 million. It posted decline of 19.31% y-o-y in FY09 revenues to Rs 734.07 million while operating margin dipped 709 bps over the year to 27.80%.

Further, the valuations of the company also seem to be expensive. At floor and cap price, the issue is priced at 57.40 times and 61.50 times respectively of FY`09 earnings of Rs 1.22 a share. However, the industry`s average P/E was 6.36 and highest P/E was at 16.77.

Issue does not deserve any merit and attention and should be avoided under any and all the circumstances, Tulsian advised.

``We recommend investors to avoid the issue considering the pessimistic outlook for compact disks``, broking firm KC Securities said.

On the whole, it is better to stay away from stock offering of the company considering the demand concern, high debt-equity, weak financials and expensive valuation.