Though 20 Microns has the ability to move up the mineral processing value chain, it is asking a stiff premium for its expertise.

20 Microns, a mining and mineral processing company which makes inputs for industrial users, plans to expand its capacity and manufacture value-added products. Its basket of products, which include finely ground and processed particles of calcium carbonate, talc, mica and silica, are used as cheaper and property enhancing substitutes in sectors such as plastics, paints and paper.

The company is enhancing its capacities by 41,000 tonnes to 1,37,400 tonnes per annum at a total cost of Rs 14 crore. The company has raised about Rs 10 crore from IDBI to meet a part of the expansion cost.

To meet the balance, it is raising about Rs 23 crore from its initial public offering. About Rs 14 crore of public issue is an offer for sale from an existing investor, Gujarat Venture Finance (GVFL) with the rest being a fresh issue of shares.

The company management says that although only Rs 9 crore of the IPO will be used for the ongoing expansion, the issue will offer an exit route for one of GVFL’s funds (an investor in 20 Microns) which matures in 2009.

While GVFL’s share will be down to about 18 per cent from the current 43 per cent post-issue, the share of the promoters will come down from 54.15 per cent to 50.24 per cent.

The company, which has four mines and eight manufacturing facilities in various parts of the country, is looking at a phase-wise expansion with the first phase being undertaken currently while the next phase will be carried out after two years.

The strengths of the company vis-à-vis new entrants are captive mines (60 lakh metric tonnes), manufacturing plants and R&D strength. To tackle competition from the unorganised sector, to save on costs and meet customer demand, the company outsources 35 per cent of its sales to unorganised players.

To reduce the transportation cost (10 per cent of sales) from the mines to the factory and then on to customers, it is planning to move part of the cargo in rail containers and the rest through ships.

To improve its margins (14.4 per cent EBDITA, 4.2 per cent NPM) and to diversify the applications it caters to, the company is trying to focus on the specialty products which are synthetic variations of natural minerals.
 

Currently, 11 per cent of its turnover (Rs 107 crore) comes from this business, which the company wants to enhance to 25 per cent over the next couple of years.

While the company has the infrastructure, the customer base, the technology and the product portfolio, it faces stiff competition from the organised segment for some of the products it markets. The competition includes the country’s largest minerals player Ashapura Minechem, English Indian Clays and the global leader in industrial minerals, Imerys.

In this context it is difficult to justify a pricing of Rs 50 - Rs 55, which works out to 12 times FY09 EPS of Rs 4.16 at the lower end of the price band while a more diversified Ashapura Minechem is available under 6 times its FY08 EPS of Rs 20.

Issue opens: September 8
Issue closes: September 11

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