 "Poly-sack sector's poor discounting to weigh on Plastene IPO")
By V S Fernando
The Ahmedabad-registered Plastene India Limited (PIL) launched an Initial Public Offer (IPO) of 92,55,290 shares, equivalent to 25.89 percent of the post issue paid capital of the company on 9 May. Of the total issue, 5 percent is reserved for the company’s employees, up to 50 percent for Qualified Institutional Buyers (QIBs), not less than 15 percent is for non-institutional investors and the remaining (30 percent) is for retail investors.
[caption id=“attachment_305050” align=“alignleft” width=“380” caption=“Existing Shareholders’ CostPIL’s individual promoters hold about 28.4 percent (with group companies they control 87.3 percent) which will be reduced to 21 percent post-IPO. For the core promoter holding of 75.22 lakh shares, the average cost of acquisition works to less than Rs 20 while the public is asked to shell out more than Rs 80 per share.Table”]  [/caption]
PIL’s IPO is managed by the Mumbai-based investment banker, Motilal Oswal Investment Advisors (MOIA), who has had a mixed bag in the past. MOIA was associated with eight IPOs in five years between 2007 and 2011 of which three have fetched decent gains while three others have inflicted heavy (more than 75 percent) losses.
Concerns with the IPO
• Highly competitive and fragmented industry due to low entry barriers.
• Vulnerability of FIBC export demand to global slowdown.
• Weak bargaining power with customers could exert pressure on margins in the domestic poly woven sack business, particularly for fertilizer bags.
• Unpredictable margins due to fluctuations in the prices of polymers.
• Expansion project at a preliminary stage, only 10% of the machinery have been ordered
• Funding requirements and expansion plans have not been appraised by any external agency.
• More than one group companies engaged in similar line of business.
• Conflict of interest in transactions with related parties.
V S Fernando is an IPO analyst at India Aarthik Research
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