Flexituff International IPO - Avoid

In our New Issue Analysis (Refer to Dalal Street Investment Journal Issue No. 21, dated 09h Oct, 2011), we had recommended that our readers keep the IPO of Flexituff International (FIL) on hold, as we were awaiting the management’s comments on the company’s future outlook and prospects.

We met up with the management of FIL in the recently-concluded analysts’ conference held in Mumbai on 22nd Sept, 2011.

FIL plans to raise Rs 100 crore, at a price band between Rs 145-155 per share. The said price band discounts the post issue EPS of Rs 14.26 between 10.17-10.8x its upper and lower band respectively. The company commands slightly higher valuations in comparison with its peers. Although it can be argued that the company enjoys a premium due to its market leader position, we believe that the industry itself doesn’t command much interest from investors.

Looking at the near future, we believe that FIL could experience some headwinds in its revenues due to a slowdown in consumer industries like construction and infrastructure. Also, a meltdown in the European and American economies may hurt the company gravely, as it derives a major chunk of its revenues from these markets.

With regard to its mixed-bag bottomline, the management has mentioned higher depreciation and deferred tax payments as the chief reason for a drop in PAT in FY10. Going forward, with the interest payment expected to rise due to additional debt pile up and further depreciation charge due to increase in gross block as a result of proposed capex, one may expect the bottomline to come under some pressure. The PAT margins may also come under further pressure in FY12, as FIL may be compelled to pay MAT at its SEZ unit in Pithampur, where it has historically enjoyed some tax benefits and concessions.

In conclusion, we, at DSIJ, advise investors to stay away from the issue, as we don’t expect FIL to offer capital appreciation to investors.

Issue Information

Shareholding Pattern

Financial Performance (Rs/Cr) (Cons)