PG Electroplast – share performance after the public issue
P G Electroplast
P G Electroplast
PG Electroplast, operating in consumer electronics segment, came out with a public issue (IPO) in September by offering 5745000 equity shares to raise around Rs.120 crore. The public issue was made through a 100% book building process in the price range of Rs.190 – Rs.210 per share of face value Rs.10. The IPO price was overvalued if one compared to the earnings of the company in the past one year. The company is engaged in the manufacture of CRT TVs. It has major dependence on two clients. Out of the public issue proceeds of Rs.120 crore, the company will be using Rs.75 crore for capacity expansion and Rs.15 crore for enhancing working capital. The remaining Rs.30 crore will be earmarked for other expenditure. After the issue, the promoter’s holding fell in the company to 65%.
75% business from 2 clients
Apart from television components and television sets, PG Electroplast also manufactures DVD players, air conditioner sub assemblies, compact lamps for third parties and water purifiers. The company has production bases in Uttarakhand, Uttar Pradesh and Maharashtra. The company gets 35% of its business from the Tamil Nadu government and 40% of its business from the Korean major LG Electronics. Excess dependence on these two clients for 75% of its business makes PG Electroplast vulnerable to future change in environment.
Wafer thin margin
The company’s net sales turnover has increased steadily in the last four years to Rs.436 crore in 2010-11. But the company treads on very thin margins. Its operating profit margin is around 5% on an average and net profit margin around 2%. But it has a low debt equity of 1.5 which will come further down now as the company will use a part of the public issue proceeds to settle debt.
Listing on a high note
On listing in the stock market after the IPO issue, the company’s shares closed at a high of Rs.411.65 on the first day in the Bombay Stock Exchange. It was almost double the price it offered for the investors in its IPO. Investors who were allotted shares in PG Electroplast would have reaped a rich fortune had they sold at this high price. But now the share price has come down to Rs.215 (08.11.11) – almost close to the issue price. The listing performance of PG Electroplast was the third best in this year 2011 behind Finolex Chemical and Birla Pacific. In fact on the first day, the shares of PG Electroplast started listing at Rs.200 and then zoomed to Rs.490 before settling down at Rs.411.65. The first day’s low was Rs.175. The company’s IPO was subscribed by 1.34 times.
Do not enter into the counter
At the current price of Rs.211, investors should avoid investing in PG Electroplast for the following reasons:
- PG Electroplast’s shares are traded at a price earning ratio of 16 whereas its peer Mirc Electronics commands a price earning ratio of only 10
- There is lot of volatility in the company’s shares. One suspects some sort of manipulation in the share price movement.
- The company depends on two clients for 75% of its business. If the two clients pull out, or even if one of the clients pulls out, the company will be in soup.
The company is treading on wafer thin margins
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