Midfield Industries-IPO Note - ANS Pvt. Ltd.

Issue DetailsSectorIndustry-PackagingIssue Size Rs. 56.70 - 59.85 CroreQIBs * 2,250,000Non-Institutional* 675,000Retail* 1,575,000Face Value Rs. 10 Per Equity SharePrice Band Rs. 126 - Rs. 133BRLMsAtherstone CapitalMarkets LimitedRegistrarBigshare Services Pvt.LtdCompany Address:Registered OfficePlot No. 6, Phase IV Extn,IDA Jeedimetla,Hyderabad- 500055, Andhra Pradesh* Minimum allotmentRATINGS: Brickwork Ratings India Pvt Ltd has given an IPO rating of Grade 2 tothe issue suggesting below average fundamental.Established in the year 1991, the company was formerly known as Midfield Steels Pvt Ltd. Thecompany was renamed to Midfield Industries Ltd. In the year 2006. The company providespackaging consumables like high tensile steel strapping in various dimensions and strengths,Different Seals for different applications, Collated Nails & Corner boards being used for generaland the end of line packaging of goods by varied industries. The company also providescomprehensive end to end packaging solutions to their customers at their locations whichenable them to focus on their core products and competencies. The company caters to thecompanies across wide spectrum of industries like steel, aluminum, glass, copper, paper,automobile, white goods and refractory to name a few.Steel Strapping’s of Midfield are of two grades, Supreme and Mega Supreme. Supreme SteelStrapping is made of low carbon, low manganese cold rolled steel. Mega Supreme SteelStrapping is made of medium carbon, high-manganese cold rolled steel. Supreme is designedfor low duty packaging applications, where as, Mega Supreme is designed for heavy-dutyapplications. Mega Supreme steel strapping is heat-treated, using a Midfield developedprocess. The result is a product that combines the fine surface and controlled physicalproperties of cold-rolled strapping with ductility and excellent shock resistance. In 2007, thecompany set up unit at Roorkee, Uttranchal to manufacture angle boards.Objects of the Issue:The objects of the issue are:1. Expansion of capacities at the existing plants;2. Setting up new facilities;3. Augmenting long term working capital requirement of the Company;4. General Corporate Purposes5. Achieve the benefits of listing on the Stock Exchange.

FUNDS REQUIREMENTThe Estimated Fund Requirement of the Company is as follows:Source :RHP

INDUSTRY OUTLOOKIndian Packaging IndustryGrowth of around 9% in the last couple of years achieved by the Indian manufacturing sectorhas fuelled the demand for better and higher packaging needs which are expected to grow incoming years. The growth in demand for industrial packaging is not only forcing the companiesto think about how to make the packaging more attractive and/or durable but also find ways &means to be more cost efficient without compromising on the quality. The corporate arereinventing the way they package the product for transportation to its final destination as wellas constantly innovating to make packaging options cheaper and cost effective besidesimproving on the same. Industrial packaging can broadly be classified into two segments i.e.one catering to Heavy industries and the other catering to Lighter Industries. Packaging needsand consumables for both the segments are totally different. Heavy Industries requirepackaging which can not only sustain the heavy weight of the product like steel and aluminum,but, also facilitate easy movement of the product by providing easy grip. The lighter industrieson the other hand require packaging depending on the specifications of the product, as well as,the mode of transport used. It is designated to be used in light and medium duty applicationslike package reinforcement, unitizing, building, palletizing and box closure.The actual size of market is hard to estimate due to the highly fragmented and unorganizednature of the market but is currently estimated at $ 18.8 billion with a growth rate of above15% per annum. Growth rate is expected to be doubled with in coming two years. India’s percapital packaging consumption is less than world wide average which offers mammoth businessopportunity to Indian Packaging Industry.(Source: http://www.packplus.in/Industry.htm)The growth drivers that have contributed to the development of this industry are• Changing demographic pattern of the country• Changing lifestyle• Increase disposable income• Industrial Development• Higher integrating of the economy with availability of better modes of transport• Growing middle class

The basic materials used in this industry are plastics, metals (steel, aluminum), glass andpaper/board and, in every case, packaging is the largest end-use segment for these materials.The breakdown of Packaging industry in Asia is given below:India Packaging sector breakdown:India Packaging Material Consumption:Source :RHP

POSITIVES AND CONCERNS ABOUT THE COMPANYPositivesStrong Customer Retention:Midfield Industries Ltd. (MIL) currently caters to the 500 customers both indomestic and international markets from various sectors.One stop Solution:The company provides end to end solutions to their clientele & positionthemselves as ‘One Stop Shop’ for their packaging needs providing completepackaging solutions to them at their production site.Niche segment:The company offers a complete bouquet of industrial packagingconsumables and catering to the growing demand of packaging materialrequired by various medium & large scale manufacturing companies in India &abroad.

ConcernsCapacity ConstraintThe company has not managed to grow in line with the growth in the industrialpackaging industry in India. The company has not been able to expand facilitiesthe meet the demand growth.Competition with peers in the operations contract spaceMIL is competing with ITW Signode India Ltd. in operational contract space. Theyhave a relatively stronger balance sheet and better band-width than MIL, whichgives them a competitive edge over the company.Raw material price fluctuationDue to fluctuation in the price of the raw material the company might not beable to maintain their operating profit margins.Financial ConstraintsThe company business is capital intensive and due to lack of capital thecompany is not able to match the industry growth and expand aggressively dueto financial constraints.Client base is not diverseThe company’s client base is not diverse as 10 customers account for around48% of their sales.

FINANCIAL HIGHLIGHTS1. Weighted average earning per share2. P/E ratio and comparison to its peersSource: RHP

RECOMMENDATIONSThe company is trading at P/E of 12.88 times the lower price band of Rs.126 andat 13.60 times the upper price band of Rs.133.Post IPO the PE ratio stands at20.21X the lower price band and 21.33X the upper price band. The company istrading well above the industry PE ratio. So even after factoring the company’sgrowth potential the valuation looks expensive. The company has failed tomanage is working capital efficiently and the company has defaulted on the Sixinstallments due to S E Investments Ltd.Also according to the porter’s factor the company’s buyer are relatively smalland hence the bargaining power of buyers is very high.Keeping this in mind we recommend a “AVOID” for this IPO.Disclaimer: The information being provided to you is compiled from sources we believe to be reliable. ANS Pvt. Ltd cannot and does not take anyguarantees about the accuracy, reliability, validity or timeliness of the information and/or data provided/made available to you in this document.The views are purely indicative. Neither ANSPL nor any of its associates, subsidiaries, affiliates, directors, and/or officials become liable or have anykind of responsibility for any loss or damage that you may incur from any decisions taken by you based on our recommendations. None of theinformation contained herein constitutes a solicitation from ANSPL to Buy and/or Sell securities and/or any Future, Options or Other FinancialContracts. Clients may exercise their own caution and double check or verify the information contained in our recommendations.