IPO: Platinum Industries

Platinum Industries, India's third-largest PVC stabiliser manufacturer, will launch its IPO (initial public offering) on February 27, 2024. Here's a breakdown of the company's strengths, weaknesses, and growth prospects to help investors make an informed decision.

In a nutshell

• Quality : Its three-year average return on equity (ROE) and return on capital employed (ROCE) are 120 and 61 per cent, respectively. However, it reported negative cash flow from operations in FY22.
  
• Growth : Its revenue and profit after tax grew by 61 and 181 per cent annually between FY21 and FY23.
  
• Valuation : The stock is valued at a P/E and P/B of 24.8 and 2.9 times, respectively. It has no comparable listed peers, as most listed players in this space are significantly larger.
  
• Overview : Rising demand for PVC products in the building and construction sector should drive growth in the coming years. Its non-lead-based PVC stabilisers are also experiencing strong demand. However, it faces intense competition from much larger players, which may hinder growth. In addition, the PVC industry is highly cyclical.

About Platinum Industries

Platinum Industries is India's third-largest PVC stabiliser manufacturer in terms of sales (as per a CRISIL report), with a 13 per cent market share in FY23. For the uninitiated, PVC stabilisers protect PVC from decaying and oxidation. It primarily has four revenue sources:

• PVC stabilisers - 51 per cent of FY23 revenue
  
• CPVC additives - 8 per cent
  
• Lubricants - 27 per cent
  
• Trading sales - 14 per cent

Strengths of Platinum Industries

• It is India's third-largest PVC stabiliser manufacturer in terms of sales. It had a 13 per cent market share in FY23.

Weaknesses of Platinum Industries

• Revenue concentration. Its top three clients accounted for 75 per cent of total revenue as of September 2023. Considering it has no long-term agreement with these clients, any deterioration in client relationships may impact operations significantly. In addition, it generates most of its revenue (54 per cent) from western India.
  
• The PVC industry is highly cyclical.

Risk report

Company and business

• Are Platinum Industries' earnings before tax more than Rs 50 crore in the last 12 months?
  Yes. Its FY23 profit before tax was Rs 51 crore.
• Will Platinum Industries be able to scale up its business?
  Yes. Rising demand for PVC stabilisers from the building and construction sector should help it scale up.
• Does Platinum Industries have recognisable brands with client stickiness?
  Yes. It is India's third largest PVC stabilisers manufacturer, with a 13 per cent market share.
• Does the company have a credible moat?
  No. It faces competition from both organised and unorganised players.

Management

• Do any of the company's founders still hold at least a 5 per cent stake in the company? Or do promoters hold more than a 25 per cent stake in the company?
  Yes. Promoters' stake will be 71.0 per cent post-IPO.
• Do the top three managers have more than 15 years of combined leadership at Platinum Industries?
  Yes. The top two managers have been involved in operations since its inception in 2016.
• Is the management trustworthy? Is it transparent in its disclosures, which are consistent with SEBI guidelines?
  Yes. No information to suggest otherwise.
• Is the company's accounting policy stable?
  Yes. No information to suggest otherwise.
• Is Platinum Industries free of promoter pledging of its shares?
  Yes. Platinum Industries is free of promoter pledging of its shares.

Financials

• Did the company generate a current and three-year average return on equity of more than 15 per cent and a return on capital employed of more than 18 per cent?
  Yes. Its three-year average ROE and ROCE are 120 and 61 per cent, respectively. Its FY23 ROE and ROCE were 90 and 57 per cent, respectively.
• Was the company's operating cash flow positive during the last three years?
  No. It reported negative cash flows from operations in FY22.
• Is the company's net debt-to-equity ratio less than one?
  Yes. It is net cash positive as of September 30, 2023.
• Is Platinum Industries free from reliance on huge working capital for day-to-day affairs?
  No. It has high working capital requirements. Moreover, its cash flows have also remained volatile in the last three financial years.
• Can the company run its business without relying on external funding in the next three years?
  No. It will use around 59 per cent of the net proceeds for a manufacturing facility in Egypt and Maharashtra. Given its poor cash flow history, it may need external funding for further expansion.
• Is Platinum Industries free from meaningful contingent liabilities?
  Yes. Contingent liabilities as a percentage of equity stood at 5.1 per cent as of September 30, 2023.

Valuations

• Does the stock offer an operating earnings yield of more than 8 per cent on its enterprise value?
  No. The stock will offer a 5.6 per cent operating earnings yield on its enterprise value.
• Is the stock's price-to-earnings less than its peers' median level?
  It has no comparable listed peers as they are significantly larger in size. The stock is valued at a price-to-earnings ratio of 24.8 times.
• Is the stock's price-to-book value less than its peers' average level?
  It has no comparable listed peers as they are significantly larger in size. The stock is valued at a price-to-book ratio of 2.9 times.

Disclaimer: This is not a stock recommendation. Do your due diligence before investing.

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