Manjushree Extrusions (MEL) is into manufacturing of specialty plastic packaging products, mainly containers and jars for multinational companies in FMCG, pharmaceuticals, food processing, and agrochemical sectors. The products include injection/blow moulded polyethylenetelephthalate (PET)/polypropylene (PP), and multiplayer plastic containers manufactured by adopting Japanese and European technologies. The company intends to put up Rs 53.70 crore through public issue, right issue, and debt.

Plans

MEL’s specialty plastic containers are marketed under brands Polypet, Duraflex, and Thermopet to MNCs in the FMCG sector.

The company proposes to expand its existing capacity of specialty plastic containers by 10,100 tonne per annum to 14,240 tonne, by operating shifts three times a day. The company intends to start the commercial production of expanded capacity from April 2008.

MEL had come out with an IPO of 42,00,000 equity shares of Rs 10 for cash, at a premium of Rs 2.50 per share, aggregating Rs 5.25 crore in September 1995, to part finance the project to set up a unit for the manufacture of PET containers. It is listed on the Calcutta, Guwahati, and the Ahmedabad stock exchanges. However, they are not traded on any of these exchanges.

MEL is mopping funds through a rights-cum-follow-on-public-offer of equity shares aggregating Rs 35.70 crore.

It intents to issue 51,26,100 follow-on-offer equity shares of Rs 10 each for a cash premium of Rs 35 per share (i.e., at a price of Rs 45 per share) aggregating Rs 23.08 crore. The rights issue will comprise 42,10,800 equity shares of Rs 10 each for cash at a premium of Rs 20 per share (i.e., at a price of Rs 30 per share) aggregating Rs 12.63 crore in the ratio of one equity share for every one equity share held as of 24 December, 2007.

Of the Rs 53.70 crore to be raised, Rs 42.14 crore will be utilised to expand and diversify operations by setting up facilities to manufacture specialty plastic containers and PET preforms, Rs 8.70 crore will be used to meet the working capital margin requirement

Investonomics

The company has been following backward integration to preform manufacturing, which has resulted in cost reduction and value addition. It is the only company in India with technology to manufacture multi-layer containers finding extensive application in food products (milk and its derivatives, ketchup, fruits, and sauces) and agro chemicals.

It is also ramping up capacities of PET/PP in the petrochemical sector. And in this, availability of raw materials will not be a hassle considering its tie-up with the major players in the petrochemical industry at a competitive price.

However, the company has negative cash flows from operating activities in the half year ended September 2007, resulting in heavy indebtedness. Its debt-equity ratio stood at 1.88 end September 2007. Not to mention, it operates in a highly competitive industry.

Valuation

On the valuation front, considering the annualised earnings and post-issue equity, the company quotes a P/E of around 11.9(x) at the weighted average issue price. In the plastics industry, comparable companies such as Hitech Plast, Pearl Polymers, and Wimplast have P/E of around 18.7(x), 22.2(x) and 26.8(x) times, respectively. However, one should keep in mind the size and sales of the company in comparison to its peers. Investors must consider aforementioned facts before investing.