PG Electroplast IPO Review by MLR Securities (Avoid)

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Review By MLR Securities Private Ltd on September 7, 2011

Issue Period: 7th Sep - 12th Sep
Price Band: INR 190-210
Issue Size: INR 109-121 Cr
Mcap: INR 312-345 Cr
Grading: CARE IPO Grade 3
BRLM: Almondz Global Securities Ltd
Promoter: Promod, Anurag, Vishal & Vikas Gupta
Listing: BSE & NSE

PGEL is into manufacturing and assembling of consumer electronic products like colour television sets (CTVs) & components, DVD players, air conditioners among others for OEMs. As part of backward integration, the company also manufactures plastic injection mouldings and Printed Circuit Board (PCB) assemblies for CTVs, DVD players and Compact
Fluorescent Lamps (CFL).

The manufacturing facilities of PGEL are located at Greater Noida, Uttar Pradesh and Roorkee, Uttrakhand with total installed capacity of 16 lakh pieces p.a. for PCB assemblies for CTVs and DVDs. 6.6 tonnes p.a, for plastic injection mouldings, 16.1 lakh pieces p.a. for CTVs, 3 lakh pieces p.a. for DVDs, 30 lakh pieces p.a for CFL assemblies and 30
lakh pieces p.a. for PCB assemblies. PGEL's Roorkee plant enjoys tax benefits under Industrial Policy, 2003 by the Central Government.

Mr. Promod Gupta is the promoter of the company. He is supported by his three sons namely Mr. Anurag Gupta, Mr. Vishal Gupta and Mr. Vikas Gupta having experience of more than 15 years each in the electronic manufacturing industry as executive directors of the company.

Utilisation of issue proceeds

• Expansion of plastic injection moulding facility at Greater Noida (Unit III) and Ahmednagar (Unit IV) - Rs 51 Cr
• Prepayment of term loan - Rs 24 Cr
• To meet long term working capital requirements - Rs 15 Cr

• PGEL's topline grew at a CAGR of 57% in the last five years to Rs 427 Cr in FY11 and reported a PAT of Rs 18 Cr. The major revenue contribution is from sale of CTVs with 77% share followed by plastic injection mouldings at 17.4%, revenue from sale of CFLs contributed 1.6% and DVD players at 0.8%.
• The company's revenues are concentrated in the hands of top five customers, contributing 94% of total sales in FY11, of which 51% was to group companies and related parties.
• PGEL's margins are quite low with an EBITDA margin of 7.3% and a PAT margin of 4.2%. Its debt equity level is 1.6 pre issue which will fall to less than 1 post issue. Its RoE improved from 37% in FY10 to 41% in FY11.
• The company's market cap is Rs 345 Cr on an upper price band of Rs 210. PGEL is asking for a valuation of 17.4-19.3 times its FY11 EPS. The P/BV is 1.9-2.1 times its FY11 book value of 100. Valuations are quite expensive compared to its peer like Mirc Electronics which is trading at a TTM P/E of 9 and a P/BV of 1.