Tirupati Inks has entered the capital market on 14th September 2010 to raise Rs. 51.5 crore via the public issue, comprising of a fresh issue of 1.20 to 1.26 crore equity shares of Rs. 10 each (depending on the price at which the book is discovered). The issue, priced in the band of Rs. 41 to Rs. 43 per share, constitutes 79% of post-issue paid-up capital of the company. Existing promoters will subscribe to the extent of 22% of the issue, as per the RHP.
The issue can be termed as an FPO since the company is already listed on the
The company manufactures printing ink and printing cylinders as well as trades in polyester films and other packaging materials. It has two manufacturing facilities at
According to the company, the capacity utilization in ink manufacturing industry is always low. For FY10, its capacity utilization reduced to 53.7%, down from 58.7% in FY09. In the next 12-18 months, it plans to increase its capacity utilization levels to 65-70%.
Despite low capacity utilization, it is undertaking to set-up a 5,000 MT specialty ink manufacturing facility in
The other objects of issue also seem very structured:
a) Working capital requirement of Rs. 14 crore, to meet the intensive working capital nature of the business
b) Proposed acquisitions worth Rs. 5 crore, wherein no targets identified yet
c) General corporate purposes Rs. 5 crore
The company's financials are dismal, to say the least. For FY10, it reported a topline of Rs. 72 crore, of which Rs. 54 crore or 75% was earned just from trading in polyester films. The net profit for the year was Rs. 2.2 crore, implying a net profit margin of just 3%. As on 31st March 2010, it had outstanding debtors, closing stock and net current assets of Rs. 17 crore, Rs. 14 crore and Rs. 24 crore respectively, implying the intensive working capital nature of the company's business. As against this, the fixed assets were just Rs. 3.4 crore.
Present equity of Rs. 3.2 crore will expand significantly to Rs. 15.7 crore post issue, due to the heavy dilution to the extent of 79%. The existing promoters will subscribe to 22% of the issue, by investing Rs. 11.5 crore, while the balance funds of Rs. 40 crore will be raised from the public. One wonders why the promoters did not bring in the money, much before the IPO.
At present, the company is heavily leveraged. On a networth of Rs. 7 crore, as on
On the lower and upper band, PE multiple works out to 6.0 and 6.3 times respectively. On a book value per share of Rs. 21.6, as on
Fundamentally, the issue is very disappointing and investors are advised to remain away from it. Look for better opportunities both in the primary and secondary markets!