Avoid Plastene India due to volatile business: KM Global

KM Global Finserv has come out with its report on Plastene India Limited's IPO issue. According the the research firm, investors should avoid subscribing to this issue as the underlying business of the company is volatile and the stock has been valued above its listed peers Plastene India Limited, incorporated in, 1998, was involved in importing plastic scrap and reprocessing it to manufacture agglomerates which were sold to various plastic manufacturers. In 2005, the company ventured into the manufacturing of woven sacks and woven fabrics for servicing the domestic salt, cement and fertilizer industries. The company gradually expanded its product portfolio and started manufacturing FISC (Flexible Intermediate Bulk Containers), flexible packaging, tarpaulin, multifilament yam and master batch. In 2007, the company opened its second manufacturing unit in Rajpur village, Gujarat, to primarily manufacture woven bags and FIBC. Currently, the annual manufacturing capacity is 56,200 metric tons, of which 1,200 metric tons was added in FY 2012. The funds will be used for capacity expansion at Nani Chirai & Rajpur and should be completed by April 2013. Concems Low Profit Margins Plastene faces stiff competition from other packaging companies. This is reflected in the PAT margins which have typically ranged from 2 to 4%. Raw material and currency movements add to margin volatility. Clients facing economic slowdown • The companies' key clients are in the fertilizer and cement industries. These are vulnerable to a slowdown in government spending and an economic slowdown. Listed peers trading at a cheaper valuation • Plastene's peers in the packaging industy are trading at PIE below 5 while Plastene will be listed at a ratio of over 8 times earnings

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