Paramount Printpackaging IPO raises some concerns

By VS Fernando

For a company that is yet to pay a dividend, whose promoter companies are still making losses, and whose pricing is rather aggressive, the Paramount Printpackaging Ltd (PPL) issue that opened on Wednesday does not quite qualify as great buy.

Issue objective

The Paramount (PPL) issue object is to set up a unit in Gujarat at a cost of about Rs 32 crore for manufacturing high-end Duplex board cartons, shippers and printed corrugated boxes besides augmenting long-term working capital to the tune of Rs 5 crore.

Paramount Printpackaging IPO at a glance

The Navi Mumbai-based company is controlled by Sukhadia family members who were partners of Paramount Printing Press established in 1941. The promoters shifted from stationery printing to packaging in 1982. PPL was originally formed as a partnership firm in 1985 which was then converted into a private limited company in 2006. This is reportedly the first public issue of the promoters.

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PPL has a factory in Navi Mumbai with an annual capacity to convert about 6,000 tonnes of paper board into cartons. The company’s integrated plant claims to have a capacity to produce 20 lakh cartons per day. Pharma, FMCG, auto ancillary, tobacco, and food & beverages are some of the major end-users of PPL’s cartons. From the Navi Mumbai plant, the company caters to its clients in Maharashtra, Goa, Gujarat, Karnataka, Himachal, MP and the UK.

At the proposed new facility in Gujarat, PPL proposes to make high-end duplex board cartons (15 lakhs per day) and printed corrugated boxes (7 tonnes per day) to cater to its existing client-base.

Growth prospects

PPL, whose present gross block (assets) is valued at Rs 35 crore, now proposes to add another Rs 30 crore through the new project which is scheduled to be completed by the third quarter of fiscal 2012. Since PPL already commands a higher operating margin (21%) as compared to its peers in the industry, if the project is completed on time, the company should be able to make adequate profit to service the post-issue equity.

Background

Valuation

The packaging industry comprising about 60 companies is current valued around 15 times earnings (P/E). Within this segment, carton box units have a mixed discounting. However, the best in the industry command a P/E of only around 12 times earnings, 1.3 times the net worth and 0.5 times turnover. Compared to this, Paramount’s valuation, even at the lower price-band of Rs 32, looks costly.

Syndicated by India Aarthik Research (Feedback to vsf@iarlive.in)

* V S Fernando is a veteran IPO Analyst who has been tracking domestic public offerings since 1986.