New IPO: Lakhotia Polyesters

Lakhotia Polyesters (India) (LPIL), an SME company, is coming up with an IPO on the BSE SME platform. This will be a fixed price issue, which opens on March 19, 2013 and closes on March 21. A total of 14.52 lakh equity shares are being issued through this offering. The offer constitutes 2.20 lakh equity shares for the market makers and 12.32 lakh equity shares are included in the net issue to the public. The public issue and net issue constitute 38.82% and 32.93% respectively of the post issue paid-up capital.

The issue price is Rs 35 per share. The lead manager for this issue is Intensive Fiscal Services. The total equity shares prior to issue are 22.88 lakh, and after the issue this will stand at 37.71 lakh equity shares. The company intends to utilise the fund raised to meet its long-term working capital requirements and to fulfil its general corporate expenses.

The flagship company of Lakhotia Group, LPIL is engaged in the business of manufacturing polyester lacquered/coating films and slitted M-type yarns. The company is based in Nashik, Maharashtra. It started its operations primarily with man-made yarn products to cater the domestic markets. The products manufactured by the company are used in the industries like textile, printing, decorative, packing and manufacturing of grey fabrics, which are used in sarees and as interline cloth. The yarns manufactured are used for made-ups in the apparels, hosiery, furniture and garments industries.

LPIL has a long pipeline of products, which includes laser drafting film, inkjet film, oddset film, transfer film, chemical resistant film, DG film, lacquered metallised polyester film for both one side and both side, lacquered metallised polyester (extra slippage) and fluorescent film. It manufactures its grey fabric products at Malegaon, Nashik, whereas its metallic yarn and metallic film manufacturing plants are located at Pimpalgaon Baswant, Nashik.

The company has reported strong financial growth in H1FY13. Its topline stands at Rs 334.76 lakh in this period as compared to Rs 796.43 lakh in FY12, while its net profit grew to Rs 10.15 lakh in the similar period from Rs 6.94 lakh in FY12. Its EBITDA grew to 14.68 lakh in H1FY13 against Rs 11.30 lakh in FY12.

On the valuations front, the offer price is at 115x its FY12 EPS of Rs 0.30. Its listed peers on the BSE and NSE, Jindal Poly Films and Uflex are trading at 5.61x and 2.54x their FY12 EPS of Rs 32.10 and Rs 35.39 respectively. Considering LPIL's low quantum of business and higher valuation, we recommend that investors stay away from this public offering.