Meghmani Organics is entering the capital market on 4th June 2007 with an issue of Rs.102
crores by issuing equity shares of Re.1 each in the band of Rs.17 to Rs.19 per share. The
issue may comprise of 5.37 crore to 6 crore share, between the price band of Rs.17 to Rs.19.
The company has worked out a capex plan of Rs.102 crores that is fully equity financed from the proposed issue. The company is setting up new pigment plant costing Rs.14.52 crores and a multi purpose agrochemicals plant for Rs.11.42 crores. Strangely enough, capacity of both the plants is not specified. It is shocking that within the same prospectus, the company has such varying figures! Makes you wonder about the abilities of the company in running a business!
Even if you want to find out the existing capacity, the same is contradicting at various places. On page 53 of the Prospectus, combined pigment capacity is mentioned at 14400 TPA while page 56 states the capacity at 15000 TPA.
Strangely the capacity utilization of pigments and agrochemicals for FY07, FY08 and FY09 is given on page 56. Any future projections with regard to financials or capacity are prohibited.
Also, at various places, the company has been stating land area of its various plants while manufacturing capacities is missing. Looks like the company has adopted the simple logic - confuse if you cannot convince.
Apart from capacity variation, even financials are not in agreement with the restated profit and loss figures. Page 140 of the prospectus states sales value for FY06 at Rs.407.08 crores while page 10 and page 119 states the same at Rs.380.89 crores.
Even pigment production on page 56 for FY06 is shown at 12888.79 MT while sales on page 140 for FY06 has been shown at 9092.88 MT. This means, accretion in the stock is by about 3795.91 MT, which is not supported by increase in the stock for FY06, which is just shown at Rs.21.27 crores. The sales value of this increase in stock is about Rs.71.36 crores.
How can a company be so casual in presenting the financials and quantitative details? What is the role and responsibility of the Auditors and Book Running Lead Managers? Isn't it the responsibility of SEBI, the watchdog, to have looked into these discrepancies before giving the nod to go-ahead with the IPO?
For FY07, the company is likely to post an EPS of Rs.2 on expected sales of Rs.500 Crores. This means share is issued at a P/E of about 9. On fully diluted equity, P/E works out at 12 on the upper band. This segment is a low discounting sector and even on fundamental basis, the share does not merit investment.
Would you prefer to subscribe to a company's share that is not forthright, is misleading or is itself confused about the financials and quantitative details? Would you trust such a company to be equally honest with your money too?