Tijaria Polypipes (TPL) recently came up with an IPO to garner Rs 60 crore through a fixed price issue, at Rs 60 per share.

TPL is engaged in the manufacture of HDPE, MDPE, LDPE, PVC/SWR pipes, fittings and PET straps, which are widely used in the irrigation, telecommunication, industrial, infrastructure and housing sectors. The company’s manufacturing plants are located in Jaipur, Rajasthan, with a total installed capacity of 35256 MTPA. 

The scrip was listed on the BSE on 14th October, 2011, at a price of Rs 61, but got hammered down on the first day amidst high volumes. At present, it is quoting at Rs 15, down by 75 per cent from the offer price. 

Does this huge discount make it an interesting buy now? Definitely not! At the time of our analysis, we had clearly stated that this company would be available later at a considerable discount to its issue price. Even at its CMP, the counter is not worth investing in, because it will not provide any price appreciation. 

Our contention is based on the reasoning that as far as the proposed expansion plan is concerned, funding which is the chief objective of the issue, the company has merely chalked out some plans to buy certain equipments, but has failed to provide any estimates about the expanded capacities and its utilisation rates. Moreover, with the current production line yielding a utilisation rate of hardly 40 per cent, the management’s rationale behind capacity expansion activities seriously raises concerns in our minds. 

Further, we fail to foresee any synergy between TPL’s existing business and its proposed diversification into the manufacturing of Partially Oriented Yarn (POY), Draw Textured Yarn (DTY), Monofilament Yarn, Polyester Zipper Long Chains, Mink Blankets and PET Sheets.

In the project appraisal report, Bank of India had raised serious concerns over the company’s weakness and its vulnerability with regard to such expansion and diversification.

On the financial front, the company reported sales of Rs 119 crore and net profits of Rs 6.90 crore. On the valuations front, at its CMP, the company is commanding a PE of 5.24x its post issue EPS of Rs 2.92. We believe that even at such discounted valuations, the counter is not worth investing in, given that it is a small player in the plastics business. Its peers with established businesses, like Supreme Industries, Jain Irrigation and Precession Pipes, are commanding a PE between 10-15x.