OFS Technologies IPO – 900% revenue growth in FY15 – Should you subscribe

OFS Technologies IPO – Should you subscribeOFS Technologies IPO – 900% revenue growth in FY15 – Should you subscribe

Bengaluru based, OFS Technologies IPO would open for subscription on 28th December, 2015. OFS Technologies is a software development company and Information Technology Outsourcing Company in India. Its revenues jumped by 7.89 times in last 5 years. It has grown at abnormal growth of 900% in last financial year (FY2015). What are positive factors of OFS Technologies IPO? What are the its hidden factors in OFS Technologies IPO? Should you invest in such SME IPO or not?

About OFS Technologies Limited

OFS Technologies is a software development and information technology outsourcing company with its own ERP product division catering to the food processing industry. They help software-enabled businesses to design, develop, test, and maintain their software products and applications, whether they are hosted, licensed, or mobile. Company cover the entire life-cycle of software product development, maintenance, quality assurance testing, and support, all while keeping the costs low.

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Issue details of OFS Technologies IPO

  • IPO opens: 28-Dec-2015
  • IPO closes: 31-Dec-2015
  • Face Value: Rs 10 per share
  • Issue band: Rs 25 per share
  • Minimum Shares: 6,000 shares and multiples of 6,000 shares there-of
  • Minimum amount: Rs 150,000
  • Issue size: Rs 425 Lakhs
  • Lead Managers: V.B Desai Financial Services Ltd
  • Listing: BSE SME
  • Download OFS Technologies IPO Prospectus and Abridged prospectus from BSE / SEBI Website at this link

Purpose of the IPO:

1. Strategic Acquisition(s) / Joint Venture

2. General Corporate Purpose

3. To meet Issue expenses

Company Financials (reinstated)

  • Company generated revenue of Rs 59.97 Lakhs for the year ended Mar-11 and Rs 460.95 Lakhs for the year ended Mar-15. 
  • Company posted a profit of Rs  0.46 Lakhs for the year ended Mar-11 and a Rs 124.87 Lakhs for the year ended Mar-2015.
  • Its restated EPS for FY 2015 is Rs 3.04 and last 3 years average EPS of Rs 10.53.

OFS Technologies IPO Financials

Reasons to invest OFS Technologies IPO

  • Good revenue growth in FY2015. Its revenues increased by 900% compared to previous financial year. However, one should note that first 4 years out of last 5 years, company has not shown improvement in revenue. We could see this only in last year FY2015 and 3 months ended Jun-15.
  • Good margins of 27% in FY2015 and 23% for 3 months ended Jun-15.

Reasons not to invest in OFS Technologies IPO

  • Outstanding litigations pending against this company.
  • Company has undergone change of management control in 2013. We could not see any major growth in FY2014 inspite of this change. However, we could see significant growth in FY2015.
  • The present promoters of the Company are first generation entrepreneurs.
  • Company historical financial information will not provide a meaningful basis for evaluating its future results.
  • They have not entered into any definitive agreement to utilize the proceeds of the Issue.
  • Company does not have any long-term contracts with its customers.
  • They rely on a small number of clients for a large proportion of its income.
  • They have reported negative cash flows.
  • Other risk factors (Internal and external) can be viewed in prospectus Page no. 16 onwards.

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Recommendation / Investment strategy

  • Based on its FY2015 EPS of Rs 3.04 and issue price of Rs 25, P/E Ratio works out to be 8.2x Based on its 3 years average EPS of Rs 10.53 and issue price of Rs 25, P/E Ratio works out to be 2.3x.
  • Means company is asking the issue price in the P/E ratio of 2.3x to 8.2x. Its peers, Take Solutions Ltd is trading at P/E ratio of 151.06 and Mindtech India Ltd is trading at P/E ratio of 16.4. Considering this, the issue price of Rs 25 is reasonably priced.
  • While OFS Technologies Limited revenues have not grown significantly in first 4 years out of last 5 years, its FY2015 and 3 months ended Jun-15 revenues are aggressively grown. It has also generated healthy margins of 27% in FY2015. I would get excited if this momentum would continue for another couple of more years so that we see consistent improvement in numbers. I would advise high risk investors to invest in this IPO.

Disclaimer: I do not have an interest 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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OFS Technologies Limited IPO – Should you subscribe


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