Monday 27 August 2007

IPO Analysis Note - MAGNUM VENTURES

PREMIUM TAG MARS VENTURE

MAX. ISSUE SIZE (Rs) : 53 crores
PRICE BAND (Rs) : 27 - 30
ISSUE OPENS/CLOSES : 27th to 30th August, 2007
LISTING : NSE, BSE




Over the last two and a half decades, this company has been engaged in the trading and manufacture of paper. It now seeks funds with the primary objectives of upgrading its paper manufacturing plant and for an hospitality project.
Historically, Magnum has used waste paper to manufacture writing and printing paper, besides duplex boards. It has an installed capacity of 85,000 mtpa, which it believes can be optimally used post its proposed upgradation. Resultantly, speedy implementation of the upgradation process assumes vital dimensions.
Magnum’s hospitality project appears to be a response to the upcoming Commonwealth games in Delhi. If this project achieves timely closure, the company which has historically owned land in the National Capital Region (NCR), stands to gain. For its proposed four-star hotel with 212 rooms, the company has a tie-up with the Carlson group to set up ‘Country Inn & Suites’.

However, the flip side here is that the Carlson group label comes with a healthy fee tag too. While, the label will serve the company well in the run up to the aforementioned Games, in the aftermath, the fee tag could squeeze margins. The high debt that this company carries too could hamper bottomline growth. The financials appear modest with lower margins being offset by topline growth in FY07.
However, given that Magnum will remain primarily a paper manufacturing company till its hospitality project achieves closure and optimal utilization in 2010, the demand for a P/E multiple of around 13.5 multiplies risk for potential investors.