Expensive Bargain - Midfield Industries

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Hyderabad-based Midfield Industries is coming out with an IPO of 45 lakh shares and has set the price band in the range of Rs 126-133 per share. Through this issue the company expects to raise around Rs 56.7 - 59.85 crore, which would be utilised towards capacity expansion of existing plants, setting up new facilities, augmenting long-term working capital requirements, etc. with balance towards general corporate purposes.

Midfield Industries (MIL) is basically engaged in industrial packaging and provides packaging consumables like low and high tensile steel strapping in various dimensions and strengths, different seals, collated nails and corner boards, etc. Through its products it caters industries such as steel, aluminum, glass, copper, paper, automobile, white goods, etc.

The company has a good list of clients, which includes Essar Steel, St. Gobain Glass, NALCO, Bhilai Steel Plant, Hindalco, BALCO, Nokia India, Marico, etc. But there are concerns. MIL is into an industry that is highly competitive with low entry barriers. Secondly though MIL has big clients, the flip side is that it also reduces its bargaining capacity, which is seen from its high debtors, which stand at 65 per cent of its sales with average debtors quite high at 236 days for FY10. For FY10 MIL’s revenues increased 6.68 per cent to Rs 90 crore, while profits increased 37.9 per cent to Rs 8.14 crore. At these numbers MIL is available at PE of 20-21x and EV/EBITDA basis of 10x, which is quite high. Though no direct comparable listed peer is available, packaging major Uflex too is available at PE of 8x and EV/EBITDA 5.76x.
Thus MIL is asking for a huge premium from investors, which looks unjustified for the company the size of MIL.