As mentioned in this section before, all IPOs are not IPOs and to that extent the IPO of Jindal Polyfilms is also not an initial public offering. The shares of the company already trade in the market at around Rs. 490 levels. The company is coming out with a secondary offering of its shares and the price band that it has fixed is Rs. 360 – Rs. 400.
Business of the Company
The company is the largest manufacturer of packaging films. Its products include BOPET, BOPP, metallised films, POY and polyester chips for internal consumption. These products are used for labels, food packaging and wrapping for tobacco etc.
The Offer
JPFL has plans for expansion of its BOPET segment in which it is the largest Indian exporter. Current capacity stands at 86000 tpa and after the expansion the company stands to become the fifth largest producer of BOPET in the world. The total outlay for the expansion is expected to be Rs.650 crore out of which Rs.239 crore will come from debt and also some part will come from internal accruals.
Threats
There are two main threats to the company. One is that at 58 % of the revenues raw material prices forms a large proportion of the revenue. The raw material are derivatives of oil and crude products and with the rise in the price of crude the raw material prices are likely to go up and decrease profitability of the company.
The second worry for the company should be that it derives a large part of the income from exports. In fact it is the largest Indian exporter of BOPET films. All its competitors face anti dumping duties in the EU. While the company does not face the same now, any imposition of anti dumping duty would really hurt the company.
Valuations
The stock of the company has risen more than 50% in the last year and the stock is being offered at 10 times FY 05 earnings at the lower end of Rs. 360. Considering the fact that most stocks do list on the higher end it will be safe to assume that a multiple of higher than 10 will be what the investor pays. All in all this does not seem that attractive an IPO in the current scenario with many other companies lined up in the same time and not a wise decision to block the capital. Investors are quite likely to pick up the shares from the open markets at slightly higher prices but these transactions are instant and there is no need to block money for the duration of subscription, allotment etc. From a pure IPO play investors should look at other counters to invest their money.
