Magnum Ventures is entering the capital market on 27th August, 2007 with a public issue of 176.41 lakh equity shares of Rs.10 each in the band of Rs.27 to Rs.30 per share.
The company is presently into paper manufacturing with three plants, all located at Ghaziabad in U P with annual installed capacity of 85,000 TPA. The company for FY 07 had the total income of Rs.100.82 Crores while EBITDA was at Rs.28.24 crores. Depreciation claimed Rs.10.11 crores while interest outgo was at Rs.5.54 crores for the year. PBT was at Rs.12.59 crores while PAT was at Rs.8.27 crores resulting in an EPS of Rs.4.14. The crore equity of the company, as on that date was Rs.19.96 while net worth was at Rs.46.49 crores. As against this, the total debt of the company was at Rs.95.75 crores resulting in a debt equity ratio of 2.06 : 1. Really alarming for a single product company that two making profit for the last 5 years.
The company now proposes to modernise its production facilities of paper unit II and III by technological upgradation including replacement of plant and machinery with total outlay of Rs.50 crores. Why such a massive revamp on gross block of Rs.130 crores? Also, how was the past depreciation utilised? The modernisation and upgradation of a company should be from cash accruals of any company.
The company is also setting up a 212 rooms, 4 star business hotel with project cost of Rs.103 crores at Ghaziabad. This hotel is coming up near Akshardham temple where traffic is very high.
The total cost of both the project is high at Rs.153 crores, which appears to be beyond the capacity of the company. This is being financed by term loan of Rs. 105 crores and balance by the proposed issue. Hotel would start in April 09 thus having a very long gestation.
Post issue, equity of the company would rise to Rs.37.60 crores with expected net worth of Rs.95 crores. Against this, the debt would be Rs.200 crores. This is a critical financial level for the company to operate. As such paper stocks are poorly discounted on the bourses and earning growth is expected only in FY 10. Till then, bottomline of the company may hover around Rs.10 Crores levels, resulting in an EPS of less than Rs.3/-
This kind of working does not encourage to take a subscribe call on the issue.