Emmbi Polyarns
* Emmbi Polyarns Limited is coming with a 100% book building; initial public offering (IPO) of 95,74,000 shares to raise about Rs 45 crore. The equity shares of Rs 10 each are being offered in a price band of Rs 40-45 per equity share.
* Up to 50% of the issue will be allocated to Qualified Institutional Buyers (QIB), including the 5% to mutual funds. Further, 15% would be available for non-institutional bidders and the remaining 35% for the retail investors.
* The issue will open on February 1, 2010 and will close on February 3, 2010.
* The shares will be listed on the BSE as well as NSE.
* The face value of the share is Rs 10 and is priced 4 times of its face value on the lower side and 4.5 times on the higher side. Minimum order quantity for bidding has been fixed at 150 shares and thereafter in multiples of 150 shares.
* Book running lead manager to the issue is Keynote Corporate Services
* Company Secretary and Compliance Officer for the issue is Ashvini Godbole.
Profile of the company:
Emmbi Polyarns was incorporated on November 29, 1994 under the Companies Act, 1956 as ‘Emmbi Polyarns Private Limited’. Emmbi first started off with trading activity i.e. trading in woven polyethylene and polypropylene bags. It subsequently backward integrated into manufacturing in the year 1997 and installed its first extrusion plant. Emmbi is premier and an established manufacturer of a wide range of woven polyethylene and polypropylene bags. It is an ISO 9000: 2008 certified company, with a legacy of over fifteen years of presence in the industry. It is the first non-European FIBC manufacturing company to be a part of European FIBC Manufacturing Association.
The company is engaged in the manufacture and sale of FIBC (Jumbo Bags) and woven sacks and various woven polymer based products like container liners, protective irrigation system, canal liners, flexi tanks, car covers, etc. It is promoted by the first-generation entrepreneurs, Makrand Appalwar and Rinku Appalwar. The company is one of the well established brands in the field of woven polyethylene and polypropylene product manufacturing industry. It has a track record of business in the field of woven sacks and Flexible Intermediate Bulk Container (FIBC) container liners, canal liners, protective irrigation systems, flexi tanks, car covers, which find large-scale application in the segments like cement and fertilizer. The manufacturing facility is located at Silvassa.
The company specializes in high strength, low GSM FIBC with high safety factor. It is among the first few global manufacturers to offer Jumbo Bags (FIBCs) with 130 GSM Bags, 5:1 safety factor for 1000 KG Safe Working Load and 160 GSM Bags, 6:1 safety factor for 1500 KG Safe Working Load. In addition to FIBC, the company manufactures various woven polypropylene products including small bags, box woven bags, roofing underlayment fabric, courier bags, ground covers, silt fence and geotextiles. It offers woven bags and fabrics in both PP and HDPE.
IPO Grading
CARE has assigned an 'IPO Grade 2' rating, indicating below average fundamentals, to the initial public issue of the company.
Proceeds is being used for
* Expansion of the present facility, to increase the present installed capacity from 5,000 MTPA to 17,800 MTPA;
* To meet the expenses towards market development; and
* Meet the working capital requirements of the company.
Industry Overview
The plastic industry in India has made significant achievements ever since it made a modest but promising beginning by commencing production of polystyrene in 1957. The potential Indian market has motivated Indian entrepreneurs to acquire technical expertise, achieve high quality standards and build capacities in various facets of the booming plastic industry. Phenomenal developments in the plastic machinery sector, coupled with matching developments in the petrochemical sector, both of which support the plastic processing sector, have facilitated the plastic processors to build capacities to service both the domestic market and the markets in the overseas.
The Indian packaging market is currently worth Rs 65,000 crore (approx $14 billion), which represents 2.3% of the world market with growth rate varying from 5% in some sectors to as much as 20% in sectors like flexible packaging, compared to 3% in developed countries. The packaging machinery sector involved in making packaging converting machines, product packaging machines and allied equipments have adopted modern technology are exporting the machines even to developed economies of the world. Over 40% of export is done by small and medium sector industries where the packaging industry has its major presence.
The Indian packaging industry is a combination of organized large Indian and International companies and the unorganised small and medium local companies. The organized sector of the industry may be less than 5% of the companies in the overall industry but it nevertheless controls over 70% of the market by volume. The organized sector operates in the laminated product segment such as form-fill-seal pouches, tetrapacks, and lamitubes.
Pros and strengths:
Good relationship with established players in the industry - The company enjoys a credible relationship with Hindustan Unilever, Tata Chemicals, ITC and Godrej Industries. It is well poised to benefit from this strong relationship with the industry players enabling the company to provide better services to its customers.
Multiple products - The company distributes a wide range of products such as flexible intermediate bulk containers, PP & HDPE woven sacks, box bags, woven polypropylene sheets and PP fibrillated twisted yarn. This allows the company to cater to the diverse demands of its customers and to consolidate and establish its presence across regions giving an edge over other players who are in one or few product.
New Products in pipeline - The company is in the process of entering new technical textile applications consisting of geotextiles, pond liners, canal liners, flexi-tanks, etc. these value-added products are well accepted in the western world and offer good realizations and margins as compared to its PP-based woven packaging products. Also, there is a good potential for concept products like rain water pond and woven PP canal liner in India, at the backdrop of water scarcity, drought, etc.
Wide selling and distribution network - The company has spread its operations in 11 states & Union Territories of the country. The sales and distribution of end product is directly handled from Mumbai and logistics is handled from Silvassa, while on the export front the company has a spread of customers in 14 countries in the four continents across the globe. All the material is dispatched from the NSCIT/JNPT Port.
Risks and concerns:
Raw material prices prone to price fluctuations - The company’s primary raw material for its products is petrochemical based and hence the prices are linked with international crude oil prices. Crude oil prices behave much as any other commodity with price swings in times of shortage or oversupply. The crude oil price cycle may extend over several years responding to changes in demand as well as OPEC and non-OPEC supply. Any volatile fluctuations in the demand and/or supply of any and/or all such raw materials may impact the purchase price of the raw materials and will adversely affect the profitability of the company
Risk of customers using alternative product - The company’s products are used mainly by manufacturing companies, which require packaging materials. Demand for woven bags will reduce in the event that the customers decide to seek alternative packaging materials. This, coupled with the development of more alternatives, will adversely affect the business and profitability if the company is not able to respond to these changes. The products are also subject to the risks generally associated with new product introductions and applications, including lack of market acceptance and delays in product development. Any failure on its part to forecast and/or meet the changing demands of packaging businesses and manufacturing companies will have an adverse effect on their business, profitability and growth prospects.
Stiff competition - The company faces stiff competition, both from domestic as well as international fronts. In the domestic market its nearest competitors are Shankar Packaging, Flexituff, KCP Karur, JumboBag, and Jai Corp situated in different parts of the country. Apart from this, the company also faces competition in overseas market. In Europe -- there are companies like Ishbir, Unsa, Sunjut, Storesack, etc. These companies have size anywhere from $200 million to over $1 billion. Competition from existing domestic producers and potential entrants to the industry may adversely affect the competitive position and profitability.
Dependence on transport providers - The company is dependent on third-party transport providers for the supply of raw materials to its manufacturing units and delivery of the products to its customers. Disruption in services of third-party transport providers may affect the business operations thereby causing an adverse effect on the timely receipt of supplies of raw materials and the company’s ability to deliver its finished products to the customers on time, thereby adversely impacting our business.
Delay in the implementation of the project - The company proposes to purchase plant & machinery worth Rs 1739.15 lakh from the proceeds of this issue. But it is yet to place orders for plant & machinery required for its proposed expansion project and the implementation of the project is at a very preliminary stage. Any delay in procurement of plant & machinery, equipment, etc may delay the implementation schedule and may increase the capital cost and also affect returns from the project.
Outlook:
Emmbi is one of the well established brands in the field of woven polyethylene and polypropylene product manufacturing industry. It is the first non-European FIBC manufacturing company to be a part of European FIBC Manufacturing Association. The company has constantly shown growth in production and sales. It holds good relationship with its clients and has a wide variety of products and lots of products are in pipeline. The other advantage with the company is its wide selling and distribution network.
On the concern side, the company’s business is raw material price prone, its primary raw material is petrochemicals, whose prices are highly volatile and are largely governed by the OPEC countries, and this disadvantage also brings the risk of currency fluctuation. The company will always be facing the risk of its customers using the any alternative products. Apart from this the company faces stiff competition from domestic as well as the international players.
The shares are being offered in a price band of Rs 40-45, the issue would constitute 55% of the post issue paid-up capital of the company and the net issue to public would constitute 54.72% of the fully diluted post issue paid up capital of the company. The EPS of the company as per March 31, 2009 stood at 4.35, based on this the P/E of the company at its lower price band of Rs 40 stands at 9.20 while for the upper price band of Rs 45 it stands at 10.34, anyway better than the industry average P/E of 11.30. For the year ended March 31, 2009, the company reported net profit of Rs 1.36 crore up by 151.86% from Rs 53.81 lakh in the previous year. The company has reported net profit of Rs 1.21 crore in the first six month of this fiscal, though it cannot be the measure of the company’s future performance but still the growth can be said a healthy one. Still our view will be neutral for the issue keeping in mind the various short comings of the sector risky growth prospect.
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