Servalakshmi Paper (SPL), part of the Servall Group, was incorporated in
November 2005. SPL manufactures printing and writing paper and newsprint.
SPL is tapping the IPO market with an issue size of Rs60cr in the price band of
Rs27–29/share, thus resulting in a public issue of 2.2cr and 2.1cr equity shares at
the upper and lower price bands, respectively, of face value Rs10. At the end of 6MFY2011, SPL had net worth of Rs40cr, while it plans to raise Rs60cr
through 50% dilution, which would value the company at Rs120cr, i.e., P/B of
1.2x. Even at the lower price band of Rs27, SPL would trade at a P/B multiple of
1.20x (1.24x at upper band), while its peers, which are profit-making and have
longer history of operations, are currently trading at an average P/B of 1.2x –
thus placing the stock relatively expensive. Hence, we recommend Avoid on the
IPO.
