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Euro Multivision - IPO Recommendation

Euro Multivision - IPO Recommendation

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.

IPO Analysis and Recommendation - Euro Multivision

Entering solar PV cell business

After feeling the impact of global slowdown in the optical business, entering the solar business without any experience

Part of Euro group, Euro Multivision is the second largest manufacturer of compact disc recordable (CDR) and digital versatile disc recordable (DVDR). The company began commercial production in April 2004 at Bhachau, Kutch, Gujarat, with five manufacturing lines with an installed capacity of 720 lakh units of CDR and 72 lakh units of DVDR a year. It increased its capacity to 10 lines comprising 1,800 lakh units a year and converted the DVDR capacity into CDR capacity. These lines are interchangeable and are convertible between CDR and DVDR. Euro Mutlivision has 16 distributors with over 515 district dealers and more than 1,50,000 retailers spread across the country.

To enter the solar photovoltaic business, Euro Multivision plans to manufacture solar cells from imported silicon wafers at a PV solar cell manufacturing unit in a proposed special economic zone (SEZ) at Bhachau, Kutch, Gujarat. One unit of silicon wafer can produce one cell with capacity of 3.5-3.8 watts. The cost of one unit of wafer is about US$ 2.75 – US$ 3.25. The selling price of one watt of PV cell is US$ 1.8 – US$ 2. There are at least nine companies in the solar PV cell manufacturing business. Euro Multivision would be selling the solar PV cells to solar module manufacturers. The modules would be set on solar panels and used to store solar energy.

OTB Solar B.V, Netherlands will sell and design, deliver, install, test and mechanically commission the production line needed for the project. The manufacturing line has already been delivered. The 40-MW facility will be commissioned by December 2009. Euro Multivision will be exporting the entire production and has identified Europe, US, South East Asia and Middle East as some of the key places to set up marketing offices.

The project, to cost an estimated at Rs 178.04 crore, has been appraised by State Bank of India. SBI has sanctioned Rs 80 crore as a term loan and has opened a letter of credit. Euro Multivision has utilized Rs 20 crore out of the sanctioned Rs 33.75 crore from Cosmos Co-operative Bank. The balance will be funded through the proceeds of the public issue and internal accruals.

Strengths

* Governments across the world have increased their thrust on renewable energy. With the Kyoto Protocol in place, industrial countries will have to reduce their collective emissions of greenhouse gases by 5.2% compared with 1990. Being a renewable energy, without emission of any greenhouse gases, solar energy will be one of the ways to lower emission. The Spanish solar PV market is expected to grow and reach 33,738 MW by 2020, the Italian solar PV market at a CAGR of around 48% to nearly 50 GW by 2020, and the US solar PV market at a higher CAGR of nearly 50% to more than 75 GW by end 2020. India's National Solar Mission is targeting 20,000 MW of installed solar generation capacity by 2020.

Weaknesses

* Solar PV cell production reached a consolidated 6.85 GW, with a capacity utilisation of 67%, in 2008 as against demand of 5.95 GW. With supply outstripping demand, prices of cells have crashed. With capacity expansions across all countries including in India and many projects either approved or awaiting approval in India as well as overseas, there are possibilities of continued overcapacity and higher competition.

* The solar PV cell business will need continuous capital investments for technology upgrade.

* The cost of solar energy is still high as compared with other sources of energy, thereby making it less feasible than other forms of energy without active government support.

* Prices of CDR/DVDR are falling continuously. Operating profit per unit sold has come down from Rs 2.42 per unit in fiscal ended March 2007 (FY 2007) to Rs 1.29 per unit in FY 2009.

* The price of polycarbonate, the basic raw material for optical business, is influenced by a variety of factors including crude oil prices and demand-supply balance. Any sharp increase in prices of crude will impact margin.

* Most of the raw material requirements are through imports. Polycarbonate, the basic raw material required for the optical business, and silicon wafer required for solar PV cell business are/will be imported. Adverse and volatile forex movements can affect performance.

* The Euro group has not lived up to the expectation of the investors. Euro Ceramics has disappointed since listing, with return a negative 67% as against the BSE Sensex return of 30%.

Valuation

At the price band of Rs 70 – Rs 75 on the FY 2009 EPS of Rs 0.8 on post-IPO equity, PE works out to 90.9 – 97.4 times. Among the listed companies, Moser Baer has a similar business model, but it is a very large company compared with Euro Vision on financials and capacities. Moser Baer reported production of 3,158 million units as against Euro Multivision's 159 million in FY 2009. In the PV business, Moser Baer has an operational capacity of 80MW crystalline silicon, 40MW of thin film. The company has at least 135 MW of capacity lined up. Against his, Euro Multivision's capacity will be 40 MW by December 2009. Moser Baer has reported large losses for the past two years and, excluding extraordinary item, continued to be in the red in the first quarter ending June 2009. Moser Baer currently trades around Rs 91.

via CM

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

Euro Multivision sets price band of Rs 70-75 per share

For its proposed initial public offering of 88 lakh shares

Euro Multivision has set a price band of Rs 70-75 per share for its proposed initial public offering (IPO) of 88 lakh shares, a newspaper advertisement showed today, 15 September 2009. The equity shares would comprise 36.97% of post issue paid up capital.

The issue will open on 22 September 2009 and close on 24 September 2009.

The IPO has been rated '3' by Credit Analysis and Research (CARE), indicating average fundamentals.

The equity shares would be trading on both the NSE or the National Stock Exchange as well as the BSE or the Bombay Stock Exchange.

Euro Multi Vision is mainly into manufacturing of Compact Disc Recordables (CDRs) as well as Digital Versatile Disc Recordables or DVDRs.