Paramount Printpackaging

Preposterous price

Offers shares at P/E of 50 times when peers trade at 5 times

Paramount Printpackaging, promoted by members of the Sukhadia family, is in the business of a wide range of folding box cartons, which is complemented by print finishes such as stamping, embossing, complex varnishing and security features. To have a competitive advantage it has set up its own pre-press and ink matching centre. It caters to over 100 clients in various sectors such as FMCG, pharma, electricals, auto ancillary and food and beverages.



It has fully automated plant at Navi Mumbai, which is capable of supplying hundreds of different types of folding box cartons. The plant has the capacity to convert approximately 400 tonnes of paper board every month and in terms of finished product, it has the capacity to produce 20 lakh cartons a day. It runs an integrated facility that includes pre-press, procuring of raw material from various sources, cutting paper as per requirement, printing, hot foil stamping, varnishing, UV coating, lamination, embossing, punching and pasting. The manufacturing processes is automated to an optimum level which gives it the ability to execute high quality and large volume printing jobs, efficiently in lead times.

Net sales for nine months period ended December stood at Rs 43.82 crore and net profit at Rs 1.71 crore with operating profit margin (OPM) of 21.4%. For FY 2010, net sales stood at Rs 46.5 crore and net profit at Rs 1.66 crore with operating profit margin (OPM) of 20.2%

The company intends to enter the capital market to raise money in the range of Rs 42 – 46 crore by issuing around 1.31 crore equity share of face value of Rs 10 each at the price range of Rs 32 to Rs 35 per share. It proposes to deploy Rs 31.94 crore from the net proceeds of the issue for setting up new facilities for manufacturing of high end duplex board cartons, shippers and printed corrugated boxes at Gujarat and Rs 4.96 crore for augmenting its long term working capital requirements. The Gujarat project is to be completed in Q3 of FY 2011-12. The proposed Gujarat plant will add high-end duplex board carton capacity of 15 lakh cartons per day, along with 5 tonnes per day of shippers and 7 tonnes per day of printed corrugated cartons. It is looking to enhance its existing customer base which comprises a large number of Indian and international companies, invest in high quality machinery and equipments to ensure efficient production and quality products.

Strengths

With the growth in the retail, pharma, food and beverage sectors, opportunity for growth in packaging industries has increased.

Net sales have increased at CAGR of 26% for the last 3 years.

Weaknesses

It faces competition from organized as well as unorganized players in the printing and packaging industry.

80% of sales comes from top 10 clients, out of which 54% comes from top 3 clients while 66% comes from top 5 clients. Incase, any customer decided to stop doing business with it, will lead to substantial impact on business.

The profitability level of the company is low on account of high interest and depreciation cost.

The promoter group entity, Parapack, is also engaged in the printing and packaging business. The business interests of promoter group entities can lead to a conflict of interest.

The business is highly working capital intensive.

Valuation

The company has set a price band of Rs 32 to Rs 35 per equity share of Rs 10 face value. At the lower band of Rs 32 per share, the P/E would be 37.4 times the annualized EPS of Rs 0.9 for the nine months ended December 2010 (on post-IPO equity) and 51.5 times the EPS of Rs 0.6 (on post-IPO equity) for FY 2010. At the upper price band of Rs 35 per share, the P/E would be 40.9 times the annualized EPS for the nine months ended December 2010 and 56.4 times the EPS for FY10. In the packaging industry, the comparable companies such as TCPL Packaging, Uflex trade at P/E of around 5 times their nine-month annualized EPS.