Pradip Overseas,Overseas Synthetics

Pradip Overseas is entering the capital market on 11th March, 2010 with a public issue of 1.06 crore equity shares of Rs. 10 each, in the price band of Rs. 100 to Rs. 110 per share. The company is engaged in the manufacture of Home Linen products of wider and narrow width, with current capacity of 136.50 million meters per annum, with its plant located near Ahmedabad. Due to the strong order book of Rs.3,338 crores with the company, as at 15th February 10, and plant already operating at an average of 92% capacity, the company is setting up another plant in a textile SEZ, which will take the total capacity of the company to 169.50 million meters per annum. Of the order book, export orders are of Rs. 1,015 crores and domestic orders are of Rs. 2,323 crores. The existing financial performance of the company has been quite impressive, having posted a growth of over 50% annually, in its topline for last four years. For FY09, the total income of the company was placed at Rs. 1,210 crores with PAT at Rs. 41.46 crores, resulting in an EPS of Rs. 14. As stated, this growth momentum is continuing even in the current year, as 9 months ending Dec. 09 had a total income of Rs. 1,217 crores with PAT at Rs. 51.10 crores, resulting in an EPS of Rs. 17.15 for the period. One can expect an EPS of Rs. 23 for FY10. Book value per share, as at 31st December 09, was placed at Rs. 60 per share. We feel that the strength of the company is its working capital finance facility of Rs. 425 crores, being availed from the bank. This may be seen as leveraging of the balance sheet of the company, while it is not so, as it is backed by the current assets of Rs. 900 crores, being inventories (Rs. 444 crores) receivables (Rs. 370 crores) and cash and bank balances of Rs. 80 crores, as at 31-12-09. The working capital borrowing kept on rise, with rise in topline, which has been positive for the company. In view of pending orders of Rs. 3,338 crores, the annualised growth of 30% is likely in next 18 months. It is also noteworthy to see that the company pays maximum rate of tax and inspite have posted such a robust performance. If we consider the upper band of Rs. 110 per share, it is being issued at a PE multiple of less than 5 on historical earnings and at a PBV of less than 1.75 times. Based on FY11 earning estimates, PE works out to less than 4 and PBV at 1.15 times. The proposed expansion is estimated to cost Rs. 200 crores, of which, Rs. 100 crores is for incremental margin money requirement for working capital. This is part financed by term loan of Rs. 65 crores with balance coming in from IPO and internal accruals. Working capital limits of Rs.525 crores, from 10 banks, continues to be the strength of the company, post expansion. Even post IPO, paid up equity of the company will remain quite low at Rs. 40.37 crores, translating into an expected market capitalization of just Rs. 450 crores. Alok Industries having a topline of less than Rs. 4,000 crores with huge equity base of Rs. 605 crores is having a market cap of Rs. 1,500 crores with core EV of Rs. 4,000 crores. This is inspite of the fact that EPS is expected to be around Rs. 4, thus giving a PE multiple of close to 6 times. Considering all this, issue is likely to reward the shareholders on listing as well as over 6 months period, even at the upper band of Rs. 110 per share. Go and apply.

Pradip Overseas,Overseas Synthetics

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