Magnum Ventures Limited - IPO Prospects

Magnum Ventures Limited - IPO Prospects

Issue Period : 27th August -30th August
Face Value - Rs 10
Price -Rs 27 -Rs 30
Min .Order -200 shares
Grade - Average
Recommendation - Skip

Comments

Magnum Ventures is presently into paper manufacturing with three plants, all located at Ghaziabad in U P with annual installed capacity of 85,000 TPA. The company now proposes to modernise its production facilities of paper unit II and III by technological upgradation including replacement of plant and machinery with total outlay of Rs 50 crore. Why such a massive revamp on gross block of Rs 130 crore? Also, how was the past depreciation utilised? The modernisation and upgradation of a company should be from cash accruals of any company.

The company is also setting up a 212 rooms, 4 star business hotel with project cost of Rs 103 crore at Ghaziabad. This hotel is coming up near Akshardham temple where traffic is very high. The total cost of both the project is high at Rs 153 crore, which appears to be beyond the capacity of the company. Hotel would start in April 09 thus having a very long gestation.

Post issue, equity of the company would rise to Rs 37.60 crore with expected net worth of Rs 95 crore. Against this, the debt would be Rs 200 crore. This is a critical financial level for the company to operate. As such paper stocks are poorly discounted on the bourses and earning growth is expected only in FY 10. Till then, bottomline of the company may hover around Rs 10 crore levels, resulting in an EPS of less than Rs 3. This kind of working does not encourage to take a subscribe call on the issue.

Premium on Listing - Discount