Flexituff International (FIL) recently came up with an IPO in a price-band of Rs 145-155, and settled for upper price band of Rs 155.

FIL manufactures flexible intermediate bulk containers (FIBCs) used in bulk packaging, geo-textile fabric, reverse-printed biaxially-oriented polypropylene (BOPP) woven bags and special polypropylene (PP) bags, including Leno bags, at its two manufacturing units located in Pithampur (Special Economic Zone and Domestic Tariff Area), MP, and one unit at Kashipur, Uttarakhand.

The scrip was listed on the BSE on 19th October, 2011, at a price of Rs 155, and rose by 7.4% to close at Rs 166.4, amidst high intraday volatility.

Does this initial price appreciation make FIL an interesting buy? Our answer is a clear-cut “No!” At the time of our IPO analysis, we had stated clearly that despite the promising growth prospects offered by the company, we are very skeptical about the company’s future outlook and the sustainability of its financial performance. Even at the CMP, the counter is not worth investing in, because it will not provide any price appreciation.

The main reason for our scepticism is that the US and European markets, which contribute to around 75 per cent of FIL’s revenues, are currently on the brink of a major economic catastrophe with the potential to plunge the two economies into a double-dip recessionary phase. This could severely impact the company in terms of order inflows. FIL could also experience some headwinds in its revenues due to a slowdown in consumer industries like construction and infrastructure.

Further, FIL’s plans to diversify into the highly fragmented and unorganised drip irrigation industry raises some concerns in our minds, as the company has not laid down any concrete marketing strategies to penetrate the market and create a brand image therein.

We also believe that the company’s objective of meeting a part of its working capital requirement through bank financing will further add to the debt pileup on the balance sheet. This is already looming at around 2x, and is hurting its financial performance.

On the financial front, in FY11, FIL’s topline and bottomline grew by 77% and 573% (YoY) to Rs 616.94 crores and Rs 30.97 crores respectively, on account of the newly-installed capacities that resulted in an increase in sales volumes, higher sales realisations and better profitability.

However, one may expect FIL’s financial performance to come under severe pressure going forward, with the expected slowdown in demand coupled with a rise in interest payment due to additional debt pileup, as well as further depreciation charge due to an increase in gross block as a result of proposed capex. The PAT margins may come under further pressure in FY12, as FIL may be compelled to pay MAT at its Pithampur SEZ unit, where it has historically enjoyed some tax benefits and concessions. Hence, we, at DSIJ, believe that the company will be unable to sustain such a robust financial performance in the future.

On the valuations front, at a CMP of Rs 167, the counter is commanding a PE of 11.7x its post issue EPS of Rs 14.26. In comparison with its peers (Jumbo Bags and Neo Corp), the company is commanding slightly higher valuations. Although one may argue that the company enjoys a premium due to its market leader position, we believe that the industry itself doesn’t command much interest from the investors.

We advise our readers to stay away from the counter.

Recommendation	Sell
Price Band	Rs 145-155
Issue Price	Rs 155
Shares Offered
Fresh Issue	45 lakh equity shares
Offer of Sale	22.5 lakh equity shares
Subscription Status	Oversubscribed
Total	1.17
QIB	0.51
Non-Institutional	2.35
Retail Investors	1.6
Listing Price	155
CMP	166.4
BSE Code	533638
Percentage Gain/(Loss) on Listing	0
Percentage Gain/(Loss) at CMP	7.35%
Date of Listing	19-Oct-11