Euro Multivision -IPO

The Business-: Mumbai based Euro Multivision is a manufacturer of storage media (CDs and DVDs). the company plans to import solar wafers, process it and make solar cells. these cells will be sold to module manufacturers who build the photo voltaic systems for users. the company has tied up with OTB solar, a Dutch company, for the supply of machinery and design know how to make solar cells with a capacity to generate 40 MW per year. the company has imported the equipment for setting up the plant at its special economic zone (sez) and expects to start production by January 2010. it will export the entire production. it will also look at the domestic segment where the solar photovoltaic capacity is at 700MW but solar cell manufacturing is pegged at around 350MW with most PV module makers (buyers) present in SEZs. the company could look to tap these manufacturers.
Investment-: the company is raising Rs 66 crore from the issue to partly fund its Rs 178 crore photovoltaic solar cell manufacturing project at Gujarat.
Loan-: the company has taken an Rs 100 crore loan from the SBI and the Cosmos Cooperative bank and intends to fund any shortfall post the issue from internal accruals.
Demand and Competition-: it is estimated that the installed capacity of the Photovoltaic sector worldwide is 7GW with growth rates of about 30-35%. these are three major players viz. Tata BP Solar (100MW), Moser Baer (100MW) and Webel SL (30 MW) in the country. the company believes that significant entry barriers to competition in terms of gestation, higher cost of setting up in a non-SEZ area and technology act as deterrents. the company believes that incentives given by the government such as nil duty on import of raw material and its target of reaching 20000MW of generation by 2020 from 2.5MW currently. reducing cost cost of setting up a solar plant (25-35% over the last one year) to about Rs 13-15 crore per MW should make this technology competitive vis-a vis conventional sources going ahead. further return to the tune of 19-24% for power projects based on renewable resources announced recently by CERC as compared to 16% for conventional power projects should give a fillip to players such as Euro Multivission.
Valuations-: while the company's existing business fetches it operating profit margins of around 30%, the photovoltaic business typically has margins in the region of 35%, which though looks optimistic as its peers enjoy margins ranging mid-20% (like Webel SL). the optical storage sector going by the growth in the IT hardware sector is expected to expand by about 12-15%. most of the increase in turnover over the next two years is likely to come from the Photovoltaic business due to demand supply gap. while the company's storage capacity is a fifth of Moser Baers and Solat PV capacity is half. it has been making profit since its inception. since the PV business for Euro Multivision will only start contributing meaningfully from 2010-11, a 2-3 years horizon is a must for investors who wish to participate in this issue and have an appetite for risk. that's because, the promoters have no experience in executing projects in the solar PV segment. moreover, the company is smaller when compared to established and better known names. as far as photovoltaic business segment is concerned, the nearest peer is Webel SL Energy (a 30 MW player expecting to about 100MW), which trades at 22 times 2009-10 estimated earnings. the valuation at par, indicating limited room for upside in the near term.
in Rs crore, FY-08 = FY09 = FY10E = FY11E
Net Sales 90.92 = 73.21=102.49 = 204.99
Op Profit 31.12 = 20.57 = 30.75 = 61.50
Net Profit 9.74 = 1.83 = 8.20 =20.50
EPS(Rs) 8.40 = 1.20 = 3.45 = 8.61
P/E(x) at Rs 75 8.93 = 62.50 = 21.77 = 8.71
P/E(x) at Rs 70= 8.33 = 58.33 =20.32 = 8.13

Price Band = Rs 70-75
issue Size= 61-66 crore
Issue Open = 22 Sept. 09
Issue Close = 24 Sept. 09