Incorporated in 2003, Flexituff International manufactures products such as flexible intermediate bulk containers (FIBC), reverse-printed BOPP woven bags, special PP, leno bags, geo textile fabrics and ground covers, most of which are sold to clients in international markets.
A third of the total issue of Rs 98-105 crore is an offer for sale by private equity fund-Clearwater Capital Partners (Cyprus), whose holding in Flexituff will more than halve its stake from 26.1 per cent prevailing to 10.3 per cent post the issue. Of the remaining funds of Rs 66-70 crore, the company will deploy a majority of it to meet its working capital requirements, about Rs 19 crore to expand its existing facilities in Pithampur (Madhya Pradesh) and Rs 9 crore for purchase of machinery for its dripper projects.
STRENGTHS, CONCERNS
The company is among the top players in that FIBC segment in Indian as well as international markets. It has fully integrated manufacturing facilities and caters to a diverse set of industries like FMCG, agriculture, roadways, construction and pharma, among others. Its strategy of diversifying into new products like drippers for irrigation will fuel further growth. It is also planning to increase revenues from higher margin products like geo textile fabrics and BOPP. It is also aiming at increasing focus on domestic FIBC markets. The company also believes its R&D facility will enable it to launch new products going forward.
| PROFITABLE GROWTH | |||
| In Rs crore | FY09 | FY10 | FY11 |
| Sales | 261.41 | 321.10 | 577.94 |
| Ebitda margin (%) | 13.85 | 13.15 | 13.30 |
| Profit after tax | 6.90 | 5.91 | 33.74 |
| Source: Company RHP | |||
| ISSUE DETAILS | |
| Price band (Rs) | 145-155 |
| Size (Rs cr) | 98-105 |
| Opens on | 29th September |
| Closes on | 5th October |
| CARE ratings | 3/5 |
On the flip side, the company derives between 60-70 per cent revenues from the US and European markets, thus making it vulnerable to any slowdown in those economies. While the company currently gets various income tax exemptions on all its new units, part of the exemptions will expire by FY13 and part by FY19 and thus impact its bottomline.
VALUATIONS
Flexituff's revenues and net profit grew at a compounded rate of 37.5 per cent and 41.9 per cent, respectively over FY07-FY11. Over the same period, its Ebitda margin has expanded by 196 basis points and stood at 13.3 per cent in FY11.
At a price band of Rs 145-155, the price/earnings multiple works out to 9.3-9.9 times based on FY11 earnings, and the enterprise value to sales ratio (EV/sales) of 1.1 times. While valuations look reasonable in terms of PE ratio, it is far higher in terms of EV/sales of 0.6 for peers, which though are very small in revenues terms. As such, there is limited upside in the near term. The business is also capital intensive in nature, which mean regular infusion of equity for growth. In this backdrop and given volatile market conditions, investors could skip this one.
