Vision Organics: Below Average

Score: Below Average

BL Research Bureau

VISION Organics is making a public offer of 36.25 lakh shares at a premium of Rs 30 per share to finance an expansion project for making plasticizers.

The company proposes to increase its plasticizer capacity from 21,600 tonnes per annum to 45,900 tpa at Rs 33.41 crore. The company manufactures mostly phthalate-based plasticizers such as DOP, DBP, DIOP and DIDP, among others.

For an industry which is working-capital intensive, it is not surprising to find that nearly 57 per cent of the total project cost (Rs 19.08 crore) has been provided for this purpose. While 52 per cent (Rs 17.40 crore) of the cost would get financed through equity, the balance would come through term loans (Rs 6.80 crore), internal accruals and unsecured loans.

Despite a satisfactory financial track record, the offer appears an unattractive investment proposition on the following counts. One, plasticizers are commodity products, where profits would be influenced more by volumes rather than prices. Fluctuations in raw materials prices could adversely impact the finished product prices. Two, there is excess supply in the domestic market with intense competition from the unorganised sector. Of the total capacity of around 1.80 lakh tonnes, small-scale units account for nearly 27 per cent. On the other hand, the current demand for plasticizer, which is put at 1.50 lakh tonnes, is estimated to grow by around 10 per cent in the medium term.

Three, the demand for plasticizers depends on the growth of the PVC market. Plasticizers are added to PVC products for improving its physical properties and nearly 55 per cent of the total demand comes from flexible PVC sector. However, compared to rigid PVC products, the demand growth for flexible PVC products (wires and cables, films and sheets and footwear) is expected to slow down due to increasing inter-polymer substitution. This could aggravate the excess supply situation and apply pressure on prices. In addition, sophisticated products are replacing commodity plasticizers at the higher end of the product profile.

On the whole, it appears that the growth prospects are too limited to support such a high premium for the offer. Investors can not expect much capital appreciation from the investment.

Industry class :Plasticizers

Instrument type :Equity at a premium of Rs 30

Issue size :Rs 14.50 crore

Application Amount :Rs 10

Issue opens :October 19

Earliest close :October 21

Lead managers :Fedex Securities

Project cost :Rs 33.41 crore

Post issue equity :Rs 10.35 crore

Listing :BSE, NSE, Vadodara

Project location :Silvassa

Promoters :Mr Jatin H. Shah