Pradip Overseas - Review + Recommendation

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Find details of Pradip Overseas Limited IPO

Opening Date 11-Mar-10
Closing Date 15-Mar-10
Price Band Rs100- Rs110

Objective - To part finance the setting up the proposed manufacturing facility within the proposed textile SEZ and incremental margin money requirement for working capital.

Established in 1980, POL is one of the few textile manufacturers that focus on home linen products of both wider and narrow width. In
addition to the sales in the domestic markets, its products are exported to markets in more than twenty countries.

Strengths - Good product mix and presence across markets. Experience of Promoters.  Scalable Business Model. Strong order Book.

Risks - The company and entities promoted by its promoters are involved in certain legal proceedings which are pending at different levels of adjudication before various courts and tribunals in relation to certain civil and tax issues incidental to their business and operations.
The company is wholly dependent on external suppliers for its raw materials requirements.  POL is primarily concentrated in the home linen products market.

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HSBC Invest Direct Analyst Recommendation for Pradip Overseas Ltd,

The company operates in low margin business of providing home furnishings on order basis to domestic as well as export aggregators. It has a home furnishing brand––Lucy and Linens––which it wants to establish in the domestic market. Its revenue from the branded business is negligible as of now. It competes with more established players like Bombay Dyeing and Portico in the branded segment that have a much better brand recall and market presence. Moreover, cash flows at the operating level have always been a drag on the company, which keeps accentuating capital requirements to run its day-to-day operations. The public issue will be available at 6.5x post issue annualized EPS of Rs 16.8 for FY 2010 (at a higher price band). The IPO valuation deserves a further discount when compared to its peers like Alok Textiles that trade at around 7.9x consensus estimates for FY 2010E. We would, thus, recommend AVOID on the issue.