The Hindu Business Line : Radha Madhav Corporation: Avoid

INVESTORS can avoid the initial public offer of Radha Madhav Corporation. The offer price of Rs 20 appears expensive. The key risks are sustaining margins at current levels, volatile cash flows and lack of management experience in operating projects of substantial scale.

Radha Madhav Corporation proposes to use proceeds of Rs 20 crore from this offer to part-finance its expansion project being undertaken at a cost of Rs 50 crore. The project also envisages broad-basing its product portfolio in the packaging industry. Radha Madhav Corporation, formed by consolidating the businesses of three partnership firms, does not have the comfort of a proven track record as it has been operating as a company only since March 2005. It derives its revenues from manufacturing and printing packaging material. For the six months ended September 2005, the company recorded an operating margin of 15 per cent. Since crude oil prices have hardened in recent times, the company's ability to maintain its margins remains at risk. Raw materials, primarily consisting of plastic granules, form a chunk of the manufacturing cost.

The company also faces stiff competition from other larger players in the flexible packaging business. The receivables collection period is substantially higher than the industry norm. The high credit period and the piling of inventory have resulted in a negative cash flow from operations for the six months ended September 2005.

Radha Madhav Corporation is offering one crore equity shares, of which 55 lakh shares are to be offered to the public at Rs 20 each. The manager to the offer is UTI Securities. . The offer opens on December 12 and closes on December 16.