Revenues and profits may be rolling for Paramount Printpackaging. But scratch the surface, the weak financials show up as absolute profit stays really lean

IPO details
Company Name: Paramount Printpackaging
Issue Date: April 20-25-2011
Issue Size: 41.6 - 45.5 crore
Price Band : 32-35 per share

STARTED as a stationery printing business, the Mumbai-based Paramount Printpackaging (PPL) is now into manufacturing of folding box carton packaging material. The company is planning to diversify operations to manufacture high-end duplex board cartons, shippers and printed corrugated box and raise funds through an initial public offer.

The total issue represents close to 48.7% of the post-issue of the company. Around 70-75% of the issue proceeds are likely to be utilised for setting up a new facility in Gujarat for manufacturing the new product line. An analysis of the company's business and valuations indicates that the issue is priced expensively, given the weak financials of the company and the presence of better performing companies to invest in the packaging sector. The company has the capacity to produce 20 lakh cartons daily at its fully automated manufacturing plant in Navi Mumbai. However, its top 10 customers contribute over 80% of its revenues.

FINANCIALS:

The company's revenues have grown at a compounded annual growth rate (CAGR) of 20% since fiscal year 2006 to 46.5 crore in FY10. Profits have grown at a CAGR of 76.5% since FY06 to hit 1.6 crore at the end of FY10. Despite the impressive growth rate, the profit in absolute terms is still quite meagre and given the company's expansion plan, it is likely to remain so in the short term on account of interest costs and depreciation. Being in an expansion mode for the last couple of years, the company has never paid dividend in the past and does not have any stated dividend policy.

The new manufacturing facility ? estimated to be completed by the third quarter of FY12 ?is going to augment the

capacity to 15 lakhs of high-end cartons, 5 tonnes of corrugated shippers and 7 tonnes of printed corrugated cartons daily. It is likely to increase revenues steadily every year. However, it will not necessarily translate into good earnings growth due to high interest costs and increased

depreciation.

Post issue, the promoter stake in the company is going to drop to 40%, hinting at a lack of confidence in the company's growth.

VALUATIONS:

On a post-issue basis, the company's stock is valued at 38 to 41.7 times of its estimated full-year earnings of FY11. This is a high price to earnings multiple by any industry standard. Large packaging industry players such as Paper Products, U-flex and TCPL Packaging are trading at a trailing price to earnings multiple ranging between 5 and 10. Investors eyeing the growth of packaging industry can look at investing in other larger and financially more stable players.