Midfield Industries IPO Analysis, Updates, Company Profile, Risk and Concern Outlook

| July 20, 2010 | 2 Comments

Midfield Industries

Midfield Industries Limited is coming with a 100% book building; initial public offering (IPO) of 4,500,000 equity shares of Rs 10 each in a price band of Rs 126-133 per equity share.

At least 50% of the issue will be allocated to Qualified Institutional Buyers (QIB), including the 5% to mutual funds. Further, 15% would be available for non-institutional bidders and remaining 35% for the retail investors.

The issue opens July 19 and will closes on July 21, 2010.

The shares will be listed on BSE as well as NSE

The face value of the share is Rs 10 and is priced 12.6 times of its face value on the lower side and 13.3 times on the higher side. Minimum order quantity for bidding has been fixed at 50 shares and thereafter in multiple of 50 shares.

Book running lead manager to the issue is Atherstone Capital Markets Limited.

Compliance Officer for the issue is M Laxminarayana.

Profile of the Midfield Industries

The Company was originally incorporated as ‘Midfield Steels Private Limited’ on June 8, 1990 under the Companies Act, 1956 and subsequently was changed to ‘Midfield Industries Private Limited’ and received fresh Certificate of incorporation dated April 3, 2006. Midfield Industries is a manufacturer, supplier and exporter of steel strappings, strapping seals, strapping tools & machines, accessories, angle boards, edge protectors, ID & OD protectors, pneumatic nailers, nails, PET Straps etc. Midfield is a provider of complete industrial packaging solutions. Ever since the inception, Company has grown in multi-fold in Industrial packaging Products, Services, Solutions and volumes. The company has established sustainable high quality and growth in all aspects and emerging as a global Company, exporting to many countries.

Midfield undertakes complete packaging solutions at customer’s place. It offers complete survey, field engineering with regard to identifying the appropriate, economical and competitive packaging solutions for the customers, based on which, Midfield designs and develop the most suitable packaging system for the Customer. Under Operation Contracts, Midfield undertake the customer’s total packaging activities under own responsibility and provide the services with Men, Material, Equipments and Resources for total packaging needs of customers. Since the major activity of packaging is Midfield’s responsibility, this enables customer to focus more on their core business.

Midfield makes Mega Supreme High Tensile Steel Strap & Supreme grade Steel Strap for excellent performance and have designed a full line of application equipment and accessories including seals, hand tools, power strapping machines and dispensers. To supplement steel strapping systems, Angle Boards, Protectors, Nailers and coiled nails also are produced.

Midfield Industries IPO Grading

Brickwork Ratings India has assigned an IPO Grade 2, indicating below average fundamentals, to the initial public issue of the company.

Proceeds is being used for

  • Expansion of capacities at the existing plants;
  • Setting up new facilities;
  • Augmenting long term working capital requirement of the Company;
  • General Corporate Purposes; and
  • Achieve the benefits of listing on the Stock Exchange.

Industry Overview

Packaging is one of the largest and diverse manufacturing industries in the world and was estimated to be worth at around US$ 424 billion in 2004 which is expected to have increased to over US$ 597 bn in size by fiscal 2014 employing over 5 million people in around 100,000 companies. The industry is said to grow at a rate higher than the GDP of the country with the correlation between GDP and industry’s growth varying with the level of development of the country.

The Indian packaging industry is currently $ 18.8 billion with a growth rate of above 15% per annum. Growth rate is expected to be doubled with in coming two years. India’s per capita packaging consumption is less than world wide average which offers mammoth business opportunity to Indian Packaging Industry. The actual size of market is hard to estimate due to the highly fragmented and unorganized nature of the market.

Industrial Packaging is part of the packaging industry that primarily deals with bulk and industrial packaging and primarily caters to manufacturing sector. The growth in this segment for last couple of years has been spurred by the growth witnessed in manufacturing sector; which has led to increase in demand for industrial packaging grow at an unprecedented pace. Varied forms of industrial packaging currently in vogue include shipping sacks, film wraps, strapping to mention a few. The form of packaging changes depending on the industry and the product being packaged. Increasingly the specifications for packaging are also being laid down by clients themselves.

Marketing trends are placing increasing emphasis on the look, sales appeal and quality of retail packaging. Packaging helps sell products by providing product differentiation and presentation, greater brand awareness and convenience. The continuously changing demands of consumers will require higher quality graphics and promotional links between graphics and advertising to support brand identities, plus the ability to reflect current consumer trends and images.

The Indian packaging is likely to grow many fold with the food and pharma packaging being the key driver. The large growing middle class, liberalization and organized retail sector are the catalysts to growth in packaging.

Midfield Industries IPO Pros and strengths:

Well established Brand and experienced management – The company is in this industry for over 15 years and its brands ‘Mega Supreme’ and ‘Supreme’ are established in the industry. Apart from this the company is managed by team of qualified professionals with a varied experience in the packaging industry ranging from production to marketing. The company’s key managerial personnel have experience in various facets of this business like Strapping, Operational Contracts, Collated Nails and Finance that gives them an edge over their competitors.

Niche segment of Industrial Packaging – The company is in the niche segment of industrial packaging offering a complete bouquet of industrial packaging consumables and catering to the growing demand of packaging material required by various medium & large scale manufacturing companies in India & abroad.

Large and strong customer base- The company currently caters to more than 500 customers both in domestic and international market from various sectors and holds a strong relationship with its customer and has received repeat orders from majority of them. It hedges the company against downturn or slowdown in any particular industry.

High performance of operational Contracts – The company provide end to end solutions to its clientele & position itself as ‘One Stop Shop’ for their packaging needs providing complete packaging solutions to them at their production site. It also maintains high quality standards in manufacturing of packaging consumables as well as in performance of Operational Contracts.

Midfield Industries IPO Risks and concerns:

Significant dependence on sale of steel strapping- The company is presently engaged in the manufacture industrial packaging consumables. Steel strapping is its flagship product & has contributed 65.49%, 64.18% and 65.21%of the total sales during 2007- 2008, 2008-2009 and 2009-2010. As of now, there is no substitute for steel strapping because of the nature of industry it is being used in i.e. steel, aluminum, glass, jute, to name a few. Besides, technology involved in producing high tensile steel strapping is not readily available thus there are few manufacturers in India. However, if substitute for steel strapping becomes available or if the number of manufacturers / suppliers increase, it may adversely impact the revenues. Any decline in revenues from steel strapping may adversely affect our business and financial operations.

Revenue exposed to foreign currency risk -  The company has earned an export income of about Rs 8.193 crore, Rs 8.263 crore and Rs3.022 crore that constitutes 12.12%, 9.88% and 3.33% of the total turnover of about Rs 67.51 crore, Rs 83.47 crore and Rs 90.37 crore in Financial Year 2008, 2009 and 2010 respectively. The company receives these export revenues in US dollar. Currently, collating wires a raw material for the manufacture of collated nails are being sourced by the company from the international markets. The value of import on this account is Rs 0.25 million in the year ended March 31, 2010. Further, it propose to set up new facility to manufacture high tensile steel strapping and seals at Sharjah out of the proceeds of the proposed public issue entailing outflow of funds in foreign currency.

Dependence on key customers- The company significantly depend on its  key customers who contribute close to 50% of its revenues. Top 10 customer’s contribution to the revenue of the Company during the last three (3) years was 48.85% in 2008, 42.62% in 2009 and 47.69% in 2010. Though the company has been maintaining cordial relationships with them, loss of any of the customer could adversely affect the company’s operations.

Dependence on the domestic markets- The company is significantly dependent on the domestic market for sales and derive majority of its total revenue from the domestic market. Its  total forex earnings from exports for FY 2010, FY 2009 and FY 2008 were Rs 3.022 crore, Rs 8.263 crore and Rs 8.193 crore respectively, constituting less than 10% of the total turnover. Though the company is in process of starting its operations at the manufacturing facilities set up in Dist. Thane to concentrate on the export opportunities and enhance the share in the international markets. However, any adverse developments in the domestic industry could have a significant impact on the overall operations and profitability.

Midfield Industries  IPO Outlook:

Midfield Industries is a manufacturer, supplier and exporter of steel strappings, strapping seals, strapping tools & machines, accessories, angle boards, edge protectors, ID & OD protectors, pneumatic nailers, nails, PET Straps etc. It is a provider of complete industrial packaging solutions. The company enjoys a established brand, its ‘Mega Supreme’ and ‘Supreme’ brands have made a mark in the market. The company caters to a niche segment of packaging and holds a strong reputation due to its long existence in the field. The company also holds a large clientele base and is having plans of overseas expansion. The manufacturing facilities being set up in Sharjah, UAE would help catering to the overseas markets particularly the Middle East, Australian & African markets. It also intend to set up manufacturing facilities in Rourkela.

On the concern side – The Company’s revenues are highly dependent sale of steel strapping which are contributing more than half of the sales in last three years, though there is not much competition in the segment but significant dependence may lead to major risk of sudden loss in revenue. Also the demand for industrial packaging in India has grown considerably over a couple of years but the company has not been able to expand capacities to meet the growing demand. The company has been facing financial constraints that have hindered its expansion plan.

The scrips are being offered in a price band of Rs 126-133, the company will be raising around Rs 58 crore. Post offer, the promoter group’s holding will fall to 52 % from the current 80%.Based on the EPS of Rs 9.78 for the year ended March 31,2010 the P/E of the company at the lower price band of Rs 126 stands at Rs 12.88 and at upper price band of Rs 133, is estimated at 16.02. While the industry average P/E is 9.8. For the financial year 2009-10, it has reported revenue at Rs 90 crore, and net profit at Rs 7.8 crore. The company has seen 30-40% growth in past four years and its present turnover is at $ 12 million. Though, the company has shown good growth in the financial performance there are many concerns that need s to be taken care of, the first being the valuation of the issue which sounds on higher side as the P/E of the company is much higher than its peers as well as the industry average, apart from this the company takes 208 days to collect credit sales, which is extremely high, compared with the industry average of 80 days. Apart from this the company faces stiff competition from the unorganized sector that may eat into its profit in future. The other factor going against the company is that it has entered into a joint venture which is in the same line of business. Keeping in view all these factors we will give a ‘thumbs down’ for the issue.

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Category: IPO

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