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Sunday, December 5, 2010

Midfield Industries Ltd:-A blind sell

Scripscan:Midfield Industries Ltd

Story:Midfield provides packaging consumables like high tensile steel strapping in various dimensions and strengths, different seals for different applications, collated nails & corner boards being used for general and the end of line packaging of goods by varied industries.The company faces severe competition both from multi-nationals like ITW Signode, operating on a large scale in India and globally, as well as the fragmented unorganized players in India. It also enjoys very low pricing power. Also, the price-conscious industrial packaging industry has been witnessing increasing client preference for plastic strapping over metal.Midfield takes over 200 days to collect credit sales,compared to the industry average of 3 months.The cash conversion cycle remains a worry for the business going forward.The company’s client base is not diverse as the top 10 customers account for around 48% of their sales.Its revenues are significantly dependent on sale of steel strapping. No long-term contracts with customers add more woes.It would also be prudent to note that midfield's revenues are dependent upon meeting client specific requirements and largely on a case-to-case basis.Thus if there's a change in client's preference from metal to plastic strapping then it can get severely affected.In the past 5 fiscals, the company had reported negative operating cash flows for 3 times, which adds to the concern regarding availability of free cash flows.At present price of 397 its quoting at 35 times its forward earnings which is horrendously over expensive for a tiny company like midfield.To me the fair value should be less than 100rs.Altogether a blind sell.

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