Tijaria Polypipes IPO Analysis

Tijaria Polypipes, is promoted by Mr. Alok Jain Tijaria, Mr. Vikas Jain Tijaria, Mr. Praveen Jain Tijaria and Mr. Vineet Jain Tijaria. It is based at Jaipur, manufacturing various kinds of high grade plastic based pipes viz HDPE pipes, PVC pipes, LLDPE pipes, HDPE DWC pipes, PLB HDPE Ducts, MDPE pipes, uPVC rigid & blue casing pipes, Pet Granules, micro/drip irrigation system, SWR pipes & fittings, PPR pipes & fittings, HDPE sprinkler system under the brand name of "TIJARIA" and "VIKAS". These products are used in irrigation, telecommunication, industrial and infrastructure & housing sector.



The company has an installed capacity of 20664 MT per annum for HDPE pipes, 7392 MT per annum for PVC pipes, 3600 MT per annum for Pet flakes and 3600 MT per annum for Pet Granules for FY11.

It supplies its the products to companies like BSNL and Reliance Communication in bulk segment and in the retail segment through more than 250 dealers spread across the country. Its five major customers, interalia, include Ramky Infrastructure, R.K. Sales Corporation, JDS Trade Links, Independent Fruit Trade B.V. (Netherlands) and APR Projects who collectively contributed around 41% of its total sales turnover in FY11.

It has also entered into a Consignment Sale Agreement with an overseas consignee M/s Independent Fruit Trade B.V., Holland for sale of Indian Grapes. The business of trading in grapes is not the main line of business and had a turnover of just Rs 2 crore in FY11, which constitutes below 2% of the total sales turnover.

The company intends to enter capital market to raise money of Rs 60 crore by issuing around 1 crore equity share of face value of Rs 10 each at the price of Rs 60 per share. The proceeds will be used by the company to expand its current set-up and manufacturing facilities of HDPE, PVC and a wide range of high quality pipes. Also, it plans to venture into manufacturing of Partially Oriented Yarn (popularly known as POY), Draw Texurised Yarn (DTY) Monofilament Yarn, Polyester Zippers Long Chains, Mink Blankets and PET Sheets. The total project cost for it is estimated at Rs 108.52 crore out of which Rs 60 crore will come from IPO proceeds, Rs 40 crore as term loan from Bank of India and Rs 8.52 crore from promoters. Out of Rs 108.52 crore, it will use Rs 7.16 crore for land & site development, Rs 14.66 crore for building & civil construction, Rs 62.25 crore for plant & machinery, Rs 5.9 crore for misc. fixed assets, Rs 4.95 crore for preliminary & capital Issue expenses, Rs 2.15 crore for pre-operative expenses, Rs 2.85 crore for provision for contingencies and Rs 8.6 crore for working capital margin. The project is proposed to be executed on an industrial land at RIICO Industrial Area, Jaipur.

Weaknesses

The company is relatively smaller player in the plastic pipes business which exposes it to intense competition.

There are other companies viz. Tijaria Industries Limited, Tijaria Vinyl Private Limited, and Tijaria International Limited promoted by Promoters, which may engage in the lines of business similar to the company.

It has high working capital requirements. In case of any insufficiency of cash flow to meet working capital requirements or pay short term debt obligations, there may be adverse effect on the results of its operations

A significant portion of total sales are made to various government contractors and payments from them may be delayed as these government contractors receive back to back payment from the relevant Government departments. In the event of any such delay in payment from the government contractors, its cash flows and financial condition may be adversely affected.

The company does not have experience in its diversification project of manufacturing yarns.

Valuation

The company's net sales has grown by 7% to Rs 118.6 crore and net profit by just 2% to Rs 6.9 crore for FY11. The operating profit margin declined by 60 bps to 11.2%. It has produced 8197 MT for HDPE Pipe, 3090 MT for PVC Pipe, 336 MT for Pet Flakes in FY11.

At a price band of Rs 60 per equity share of Rs 10 face value, the P/E works out to 20.5 times on the EPS of Rs 2.9 for FY11 (on post-IPO equity). In Plastic Products - pipes sector, the leading companies such as Jain Irrigation, Supreme Industries (June end is year closing), Tulsi Extrusions and Kisan Mouldings, have a PE of 19.9x, 12.03x, 15.73x and 5.92x times respectively on FY11 earnings.