Emmbi Polyarns is entering the capital market on 1st February 2010, with a public issue of 95.74 lakh equity shares of Rs. 10 each, in the price band of Rs. 40 to Rs. 45 per share.
Financial performance and health of the company does not justify this size of issue, as its net worth is just at Rs. 9 crores, as on 30-09-09, with debt equity ratio of 2.40:1, taking total debt of the company, of Rs. 21.69 crores. FY09 had topline of just Rs. 38 crores with a meager PAT of Rs. 1.36 crores. So on what basis, this IPO of Rs. 38 crores - Rs. 43 crores has been planned?
The company is into manufacture of FIBC (Jumbo bags) and woven sacks with a capacity of 5,000 TPA, which is now being raised to 17,800 TPA. The company has estimated total cost of expansion at Rs. 36 crores and planning to source it from IPO and internal accruals. When the company already has such a high gearing and reserves of just Rs. 1.22 crores on 30-09-09, anything coming in from internal accruals is ruled out. On top of it, the company had the courage to issue 3 bonus shares for every 2 shares held, ahead of this IPO. Due to this, book value per share fell to Rs. 11.50 , on pre-IPO equity base. Even post IPO, paid up equity will sharply rise from Rs. 7.83 crores to Rs. 17.41 crores. Promoters stake of 45%, post IPO, is also not comforting, as they would be enjoying the benefits of the proposed IPO, resulting in rise in the size of the company and increase in book value per share.
In the past, there have been many companies came from this sector, but none of them have rewarded the shareholders. This company will not be an exception.
Considering this, investment is not advised, as the IPO is purely to help the promoters of this micro cap company.