India Finsec Ltd IPO – Avoid

India Finsec Ltd IPOIndia Finsec Ltd IPO – Avoid

Delhi based India Finsec Ltd has come out with public issue of 60 lakh shares @ Rs 10 each totaling to Rs 6 Crores. If you are tempting to subscribe to this IPO by looking at the profitability for the 9 months ended Dec-2012 of Rs 86.90 lakhs (25.77% profitability), then wait for a minute and have a complete analysis before you invest. Should you subscribe to India Finsec IPO?

About India Finsec Ltd IPO

India Finsec Ltd is incorporated in 1994. It is NBFC Company engaged in the business of Financing, Inter Corporate Deposits, advancing Short term loans, Long term loans, credits to individuals & companies etc. Company also deals in stocks, shares and securities. As on March 31, 2012 the loan book size of the Company is Rs. 36.68 cr. None of the Assets of the Company are NPA.

Issue details:

  • IPO opens: 24-May-2013
  • IPO closes: 28-May-2013
  • Face value: Rs 10
  • Issue price: Rs 10
  • Minimum bid: 10,000 shares and in multiples of 10,000 shares thereon
  • Minimum investment: Rs 100,000
  • Lead managers: Aryman Financial Services Ltd
  • Registrar: Skyline Financial Services Ltd
  • Listing: BSE SME
  • Prospectus:

Purpose of the IPO: The funds would be used for the following purposes.

  • Purchase and set up of Office Space for Registered Office;
  • To augment our capital base and provide for our fund requirements for increasing our operational scale with respect to our NBFC activities and
  • Issue related Expenses
  • To receive the benefits of listing on the SME Platform of BSE Ltd

Company financials

Company revenues have grown from Rs 4.35 Lakhs in FY2008 to Rs 496.96 Lakhs in FY2012. For the 9 months ended Dec-2012, company reported revenues of Rs 337.27 lakhs.

Coming to profits, company has posted 1.61% margins in FY2008 and 1.47% in FY2012. For the nine months ended Dec-12, the profits are 25.77%.

India Finsec Ltd IPO

Reasons to invest

Good revenue growth from Rs 4 lakhs from FY2008 to Rs 496.96 lakhs in FY2012.

Reasons not to invest

  • Though the revenues have been growing, if we annualize the revenues of 9 months ending Dec-12, the revenues expected for FY2013 are Rs 450 Crores. Means there would be a drop in year on year revenue by 10% comparing to FY2012.
  • The margins are very low and below 1.5% per annum in FY2012. In 2013, the profit margin is suddenly increased to 25.77%. This is due to the fact about “Changes in inventories” for Rs 1.65 Crores. If we exclude such re-valuation/re-validation of inventories, there would be a loss of Rs 78 lakhs instead of Rs 87 lakhs profit.
  • Company is raising Rs 6 Crores mainly for purchasing or set-up of registered office and it may not add much benefit to the company business.

Recommendation / Investment strategy: Average EPS for the last 3 years is Rs 0.31. Revenues for the 9 months ended Dec-2012 are Rs 337 lakhs and profits are Rs 126 lakhs. It has issued the shares for Rs 200 each during 2007-2011 and issued bonus shares in May-2012. Due to this the NAV is inflated and shows Rs 22.07 as on 31-Dec-12. If the capital is increased from Rs 13.44 Crores to Rs 19.44 Crores, the NAV would reduce to Rs 17.82. The P/E ratio would work out to 32.26 on previous equity. The peer group companies P/E ratio is ranging between 3.70 and 50, hence the issue price is not high. However the minimum investment required is Rs 1 lakh. The SME IPO’s listed are trading with very low volume and the liquidity has been a problem. Considering the negative points, my suggestion is to avoid such IPO.

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India Finsec Ltd IPO – Avoid

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