Precision Pipes and Profiles Company (PPAP) is engaged in the business of manufacturing automobile sealing systems and exterior products. PPAP’s product range includes weather strips, trim door opening, windshield molding, roof molding, quarter window seal, A-pillar garnish, B-pillar garnish, skirt air damper, body side molding, among others. Additionally, it manufactures PVC based customised profiles for white goods and other industries. PPAP has five manufacturing facilities, which are located in New Delhi and Noida, Uttar Pradesh.

PPAP is an OEM supplier to the automobile industry and its client list includes Maruti Udyog, Honda SIEL, General Motors and Toyota Kirloskar. In the white goods industry, PPAP supplies customised profiles to Godrej, Voltas, Videocon and Carrier Refrigerators. PPAP derives around 90% of turnover from automobile customers, nearly 5% from white goods products and the remaining from other segments including electrical and construction.

The company has consistently been receiving various awards from its clients for the quality products and services provided to its clients. All its plants are TS 16949, ISO 14001 and OHSAS 18001 certified. PPAP has obtained ISO 14001:2004 certificate from BSI Management System, London for its unit 54-56, Okhla Industrial Estate, Delhi.

The company has chalked out capacity expansion plan at a project cost of Rs 106 crore. At present, PPAP has five manufacturing facilities in the National Capital Region (NCR) region of Delhi, with an aggregate capacity of 4.75 million kg. It has proposed a capital expenditure of Rs 95.80 crore to increase its capacity. The company plans to increase its capacity from 4.75 million kg currently to 7 million kg by March 2008, to 9.15 million kg by March 2009 and to 11.26 million kg by March 2010. The balance Rs 10.2 crore would be spent on General Corporate expense and Public Issue expense. PPAP plans to fund its expansion initiatives through term loans of Rs 25 crore and internal accruals of Rs 6 crore. The balance amount of Rs 75 crore will be met through this IPO. This expansion will be undertaken to set up a new plant in Surajpur to manufacture automobile profiles, expand the capacity of its existing facility at Noida, upgrade in-house tool manufacturing and designing capability, and set up a new plant at Badarpur dedicated to electrical outlet system products to be manufactured under the agreement with Power and Data Corporation, Australia.

Strengths

PPAP has a technical agreement with Tokai Kogyo Co (TKCL), Japan, which is a manufacturer of specialised profile sand extrusions for automobile industry. This agreement helped PPAP in diversifying into specialised products for the automobile industry.

PPAP has also entered into an Automotive Parts Licensing agreement with Nissen Chemitec Corporation, Japan. Nissen would provide PPAP new product technology in order to manufacture and deliver products in connection with automotive interior parts and related products to Honda SIEL Cars India and its affiliated companies. The company also has entered into an agreement with Power and Data Corporation, Australia for the manufacturing of electrical outlet systems for supply to the authorised distributors of PDC.

Weaknesses

PPAP’s top five customers collectively contributed approximately 83% of sales in FY 2006-07 out of which about 53% is contributed by a single customer (Maruti Suzuki). Thus like other auto ancillaries, PPAP is also vulnerable to these large clients.

Valuation

At a price band of Rs 140– 150, PPAP’s P/E works out to 14.5 – 15.1 times FY 2007 earning and 10.2-10.6 times there-months FY 2008 annualised earning on post-IPO equity. Peer group companies such as Setco Automotive, JBM Auto, ANG Auto and Lumax Automotive are trading at TTM P/E of 13.1, 6.4, 9.4 and 18.5, respectively.