Funny Software IPO – Should you subscribe?

Funny Software Limited IPOFunny Software IPO – Should you subscribe to this IPO?

Funny Software SME IPO would hit the market on 14th May, 2015. Funny Software Limited is engaged in providing IT services, consulting and business solutions organization. Company has tripled its revenues in the last financial year. What are the positive factors in Funny Software IPO. Should you invest in a Funny Software Limited IPO? What are the risk factors to be considered before you invest in a Funny Software SME IPO?

About Funny Software Limited

Funny Software Limited is engaged in the providing IT services, consulting and business solutions organization and delivering results to its business clients. They also operate as a reseller organization with a team of dynamic professionals with marketing, sales and technical know-how spread across various industries. They predominantly cater to Delhi and nearby markets and act as IT Distribution space.

Also Read: How to claim tax benefits of Rs 4.44 Lakhs as an individual in FY 2015-16?

Issue details of Funny Software IPO

  • IPO opens: 14-May-2015
  • IPO closes: 20-May-2015
  • Face Value: Rs 10 per share
  • Issue price: Rs 14 per share
  • Issue size: Rs 4.59 Crores.
  • Lead Managers: First Overseas Capital Limited
  • Listing: BSE SME
  • Download Funny Software Limited IPO Prospectus from SEBI website here

Purpose of the IPO

The objects of the issue are to utilize funds for the following:

  • To part-finance incremental working capital requirements
  • To acquire certain fixed assets
  • General corporate expenses
  • To meet the expenses of the Issue

Company Financials

  • Company generated revenue of Rs 84.76 Lakhs for the year ended Mar-13 and Rs 338.28 Lakhs for the year ended Mar-14.  It earned revenue of Rs  275.95 Lakhs for 9 months ended Dec-14.
  • Company posted a profit of Rs 0.35 Lakhs for the year ended Mar-13 and a Profit of Rs 3.68 Lakhs for the year ended Mar-2014. Its profit is Rs  3.76 Lakhs for 9 months ended Dec-2014.
  • Its EPS for FY 2013-14 is Rs 0.12 and last 3 years Avg is Rs 0.07. EPS for nine months ended Dec-2014 is Rs 0.06

Funny Software Limited IPO - Financials

Reasons to invest Funny Software IPO

  • Good revenue growth story in last 2.5 years. If we annualize 9 months revenue of FY 2014-15 to entire year, it would cross Rs 368 Lakhs. Indicating 8% growth from last financial year (FY 2013-14). However in FY 2013-14, its revenue were tripled compared to FY 2012-13.

Reasons not to invest in a Funny Software IPO

  • Profits are thin. It earned profit of 1%  in last 2.5 years. Slight variation in revenues and operating costs can have a significant impact on its operating results.
  • They are dependent on its management team for success whose loss could seriously impair the ability to continue to manage and expand business efficiently.
  • They have reported negative cash flows for 4 years out of 6 yrs.
  • The Registered Office of this Company is not owned by them.
  • They do not have any long-term agreement or contract of supply of products in which it trade and are exposed to price and supply fluctuations.
  • They have reported loss in past. Company has reported net loss of Rs.0.04 Lacs in fiscal 2009-10 & 2010-11 and Rs. 0.06 Lacs in fiscal 2011-12 same is due to company being not operational in these years and no major activity was as yet started.
  • Supply Chain Management plays a very vital role in this business.
  • Other risk factors (Internal and external) can be viewed at prospectus Page no. 9 onwards.

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Recommendation / Investment Strategy

  • At a issue price of Rs 14 and EPS for FY 2013-14 of Rs 0.12, P/E Ratio works out to be 117. At an issue price of Rs 14 and last 3 years average EPS of Rs 0.07, P/E Ratio works out to be 200.Means company is asking for P/E ratio of 117 to 200. There is no listed company in this field to compare the issue price. However issue price seems to be high as it is demanding Rs 14 per share for a company which has operating history of 2.5 years.   
  • Funny Software Limited revenues show good improvement. However, such performance should be seen in long term.  Negative factors include short term operating history, negative cashflows etc.,
  • Owing to short term operating history, one should wait and watch the performance for another 1 year. If one can see consistent revenue growth and increase in profit margins after that, they can subscribe at later point of time. Investors can avoid this IPO at this point of time.

Disclaimer: I am not interested in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.

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Funny Software IPO – Should you subscribe to this IPO

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