what u think of Ruchira Papers ipo

ssue Open 23/11/2006
Issue Close 29/11/2006
Issue Size To be announced
Issue Type Book Building
Face Value Rs.10/-
Price Range Rs.21/- to Rs.23/-
Tick Size Re 1/-
Market Lot 250
Minimum Order Qty 250

Listing Stock Exchange Mumbai, NSE
Registrar To The Issue Intime Spectrum Registry Ltd.
Book Running Lead Managers A.K. Capital Services Ltd., Punjab National Bank

Registered Office Address Trilokpur Road, Kala-Amb, District - Sirmour,
Himachal Pradesh - 173030
Phone 91-1702-238654, 238537,238350 Fax 91-1734-261141
Email ipo@ruchirapapers.com
Website Ruchira Papers Ltd. <http://www.ruchirapapers.com/>


Analysis


Background:

Ruchira Papers Ltd. (RPL) was incorporated as a Limited company in December
1980. The company is engaged in a business of Kraft paper manufacturing with
manufacturing unit located in Himachal Pradesh. RPL currently has a capacity
of 52,800 Tonnes per annum.
The promoters have over two decades of experience in the paper industry. The
IPO involves promoter's contribution of Rs.5 crore.
The company manufactures special grade paper, which got recognition from
Reliance Industries Ltd and is supplied to converters for making textile
tubes supplied to Reliance. Currently around 30% of total production is
being supplied to Reliance.
RPL has to export goods worth around Rs.42.34 crore under export promotion
capital goods scheme within eight years from the date of commencement of
production of proposed project.
RPL has dealer network spread over India with distributors network in 12
major cities.


Object of the issue:

Finance setting up of a new writing & printing paper plant.
Setting up a Chemical Recovery Plant.
Setting up a 6 MW Co-Generation Power Plant.
Mobilize Funds for general corporate purposes and meet the expenses of issue


Strength:

The company is located in the state of Himachal Pradesh where it derives tax
benefits like 100% excise duty exemption up to June 09, 2013, 100% income
tax exemption for first five years and there after 30% exemption for next
five years from the date of start of commercial production of new project,
concessional CST rates at 1% against 4% in other states and capital
investment subsidy @ 15 % of investment in plant and machinery, subject to a
ceiling of Rs.30 Lakhs.
RPL is setting up a new chemical recovery plant, which will recover caustic
soda and will also help in minimizing environmental pollution. It will
reduce the manufacturing cost of the finished product on one hand and
increase the profit margin on the other because the caustic soda recovered
would be re-used as a raw material.
RPL gets electricity supply at cheaper rates of Rs.3.25 per unit as compared
to other states, where the average cost of power is Rs.4 – Rs.4.5 per unit.
Besides, RPL is setting up a 6 MW captive power plant which would further
reduce power cost to Rs.1.9 per unit.
The company's income has increased @ 29.32% in FY2006 (Rs.63.08 crore) over
FY2005 (Rs.48.78 crore). Net profits have also been increasing. The same
surged 22.69% in FY2006 (Rs.4.65 crore) over FY2005 (Rs.3.79 crore).


Weakness:

The promoters are contributing Rs.5 crore to the issue by selling their
stake in the company. This would reduce to promoter's shareholding to 29.74%-
32.23% from the current 93.71% for a price band of Rs.21 to Rs.23respectively.
The project cost for RPL amounts to Rs.137.98 crore. A consortium of bankers
has sanctioned Rs.108.48 crore for the proposed project. However, there is
restrictive clause in the agreement by which, the loan amount would be
disbursed only on successful completion of IPO. Any hindrance in the
completion of IPO would endanger the execution of proposed project.
The company derives around 60% of revenues from its top five customers.
Thus, the sales of the company are concentrated in few hands.
RPL is located in the state of Himachal Pradesh, which boasts of adequate
availability of raw material for paper industry. However, chief raw
materials namely, bagasse, wheat straw, paddy straw and rice husk fuel are
mainly seasonal and dependent upon the agricultural crop. Lower agricultural
production could adversely affect RPL.


Valuation:

RPL intends to raise Rs.28.5 crore from the issue.
Total income increased at a CAGR of 20.89% from Rs.29.53 crore in FY2002 to
Rs.63.08 crore in FY2006.
Net Profits of the company increased at a CAGR of 82.9% from Rs.76 lakh in
FY2003 to Rs.4.65 crore in FY2006.
Post issue EPS is will be in the range of Rs.2.56 and Rs.2.69, while P/E
will range from 8.21 – 8.54 for a price band of Rs.21/- to Rs.23/-. Industry
average P/E is 9.2.
Net worth of the company is Rs.24.87 crore for FY2006 and Rs.27.9 crore for
six months ending September 30, 2006.

Peer group comparison: -

For Financial Year 2006

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Closing price as on November 20, 2006

Source:Indiabulls

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Thanks
zuber