20 Microns Limited launches its initial public offering on September 8, 2008. The company is offering over 43 lakh shares at a price band of Rs 50-55, hoping to raise anywhere between Rs 21.7-23.9 crore. The primary reasons for doing so, is to finance their ongoing expansion plans in various manufacturing units and to invest in sub micron particle sizes, which has market demand.

The units in Vadadla, Bhuj, Tirunelveli and Udaipur are set for expansion, with the inclusion of a technology-intensive import substitute. This should add to the value addition of the plants, as it will enable them to produce finer and purer material with a size of up to 0.7 microns. This should enable them to garner higher profitability with increased market penetration and greater volumes, also helping them beat off the competition.

The machinery required to set up these expansion plans costs approximately Rs 14.6 crore. The company has already secured a term loan from IDBI for Rs10 crore towards part financing of the project.

Business overview

20 Microns was incorporated in Gujarat in 1987, and is a manufacturer of white non-metallic minerals in India. The company manufactures micronised mineral products, including micronised ground calcium carbonate, china and calcined clay, talc, dolomite, silica, mica and whiting (calcite and calcium carbonate), which finds application in the paints, plastics, rubber, ceramic, paper and other industries as functional fillers.

They have mining resources and plants in the states of Rajasthan, Gujarat, and Tamil Nadu. Their eight manufacturing facilities located in different regions of the country ensure that they are closer to their markets enabling them to supply cheaper and more efficiently.

Another factor that works in the companies favour is their four mines of ground minerals, which ensure a constant supply of raw materials at a lower cost. While these four mines comprise of 72 hectre of mining area, this ambitious company has already sought permission for 1,000 hectre of additional mining area.

The company has a turnover of 1, 70,000 tonne per annum, in white minerals including ultra-fine minerals ranging from 20 microns to 2 microns of particle size and is planning to introduce sub-micronised grades and nano-additives. Sub-microns and nano-additives are processed non-metallic minerals used as an import substitute in various chemicals and polymers in paints, PVC pipes, paper, cement and ceramics.

The company?s clients so far include Finolex Cables, Berger Paints, Asian Paints, Goodlass Nerolac Paints, ICI India and Pidilite Industries.

They also have research and development facilities set up, which enable them to come out with newer products as needed by the market, and are very dedicated towards the same.

Promoters and concerns

The promoters do have a lot of belief in their projects and continue to hold a stake of 42.54% post issue. The company?s finances have been unstable, to the extent that they have had a rather rapid growth story from being a loss-making organisation up to three years ago, to making a profit of over Rs 4 crore in the last financial year.

For being a manufacturing unit, the company?s income earned through trade has increased by over 3 fold in the last four years, while that earned from manufacturing is just over 1.5 times that of four years ago. This could cause a hindrance to the company unless their new products provide them the turnaround they needed.

The company also has various pending legal proceedings related to central excise, sales tax and labour, which could have a monetary impact of more than Rs 10.50 crore, which is a significant sum compared to the size of their operations.

Also, the extreme competition faced by them from the unorganised sector, which is able to supply materials at lower cost due to exemption from excise duty, could hamper their plans for a capturing greater market share.

Number talk

20 Microns Limited showed a profit of Rs 4.59 crore in the last financial year. This is a major jump for the organisation, which had a loss of Rs. 5.31 crore in the financial year 2003-04. One of the causes for this seems to be the major financial investments the company made during 2003-04.

The company also shows increasing costs and productivity over the last few years, and if they do manage to acquire the mining lands for which they applied and start production of their new product, their financial stability will increase even more. This is a relatively small company that has recently grown and the tell tale signs are very apparent in their finances.

Considering the last financial year?s profits, the company?s post issue EPS works out Rs 3.25 with a P/E of 15.37(x) and 16.91(x) at the lower and higher price bands respectively. The industry average shows a P/E of 17 and hence the company falls within that range as of now. The company?s operating profit margins have also gone up form 8.4% to 14.1% in the last four years.