Olympic Cards - IPO: Avoid

The company's efforts to bank on the brand ‘Olympic' to break into other markets could face impediments.



Most Indian weddings, it is true, are grand affairs with no expense spared. But the Initial Public Offer of Olympic Cards, which derives half its revenues from the marriage market by way of wedding cards, is unappealing on many counts.

The business of printing wedding cards is an unorganised one with low entry barriers. Each city usually has one or two reputed companies that makes customised wedding cards.

Therefore, efforts by this company, with presence in two southern cities to bank on the brand ‘Olympic' to break into other markets (not named), could thus face impediments.

Further, the brand ‘Olympic' is not owned by Olympic Cards, but used on licence from a promoter group entity. This leads to conflict of interests as the brand is also being used by relatives of the promoter for another wedding card business. At the upper end of the price band of Rs 30-32, the offer price values the company at 20 times annualised earnings for FY-12 on a post-issue equity.

This places it at a stiff premium to closest comparable Archies, which trades at nine times trailing per-share earnings.

Competition abounds

Olympic has a strong reputation for customised wedding cards at a reasonable price in Chennai. The company has six outlets in the city and one outside the city, in Coimbatore.

It plans to use its brand standing to enter other cities. The availability of a variety of designs and the quality of the cards and printing are the key differentiators for wedding card makers. But the wedding card industry is highly fragmented with a number of small printers.

Brand value in this segment may not be accorded much importance by clients.

Besides wedding cards, about 38 per cent of Olympic's revenues come from greeting cards and a variety of stationery such as notebooks, business cards, letterheads and so on. About 12 per cent is derived from trading in printer ink.

The greeting card market has been under constant threat from the consumer shift towards e-greetings.

What is more, the key design differentiator in this segment arises from licensing arrangements with large global names such as Hallmark and PaperRose. Olympic relies on in-house designs.

With the stiff competition Olympic faces from the unorganised market and the low product differentiation across its segments, scaling up from its current size too may be challenging. FY-11 revenues and net profits stood at Rs 38 crore and Rs 2.2 crore, well below peer Archies.

With the Rs 25 crore it plans to raise from this issue, the company will spend Rs 3 crore on opening four retail outlets in Chennai. That will bring the total number of outlets to 11. About Rs 19.8 crore will fund capacity expansion which will come on stream by early 2013.

Interest weighs

Olympic Cards' revenues have grown at a compounded rate of 24 per cent over the past three years. Net profits have grown 42 per cent in the same period. Operating margins have improved to 15.5 per cent in FY-11 from the 10 per cent three years earlier as the company brought more higher-value cards into the sales mix.

But interest costs, more than doubling over the past three years, pressured net profit margins. For FY-11, net margins stood at 4.8 per cent, just a slight improvement from the 3.3 per cent three years earlier. On a pre-issue equity, the debt-equity ratio was at 1.2 times. No issue proceeds will be used to retire debt.

The company is also working-capital intensive. Working capital turnover has been on a gradual decline over the past three years. Inventory turnover has shown a sharper fall in this period. The added capacities could lengthen cycles in the near term besides adding to depreciation.

The issue is open till March 13. The lead manager to the issue is Ashika Capital.

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