Suncare Traders IPO – What are its hidden factors?

Suncare Traders SME IPO ReviewSuncare Traders IPO – What are its hidden factors?

Gujarat based, Suncare Traders IPO has opened for subscription on 15th  December, 2015. Suncare Traders is in the business of trading into laminates and plywood/MDF. Its revenues grown by 9% CAGR in last 5 years. It generates around 2% to 3% margins. What are positive factors of Suncare Traders IPO? What are the it’s hidden factors in Suncare Traders IPO? Should you invest in such IPO or not?

About Suncare Traders Limited

Company is in the business of trading into laminates, plywood/MDF. Company has exclusive distributorship of Olive brand laminates manufactured by Bloom Dekor Limited. In the initial year they were distributors of laminates, MDF in Gujarat and later on in the year 2009 they have started branch at Hyderabad, Jaipur, Chennai, Bhiwandi and Chandigarh. At present, the Company is having its branch at Jaipur for catering the demand of state of Rajasthan and at Bhiwandi for catering the demand of Maharashtra.

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Issue details of Suncare Traders IPO

  • IPO opens: 15-Dec-2015
  • IPO closes: 18-Dec-2015
  • Face Value: Rs 10 per share
  • Issue band: Rs 64 per share
  • Minimum Shares: 2,000 shares and multiples of 2,000 shares there-of
  • Minimum amount: Rs 128,000
  • Issue size: Rs 24.22 Crores
  • Lead Managers: Corporate Strategic Allianz Limited
  • Listing: BSE SME
  • Download Suncare Traders IPO Prospectus from SEBI Website at this link

Purpose of the IPO:

1) To Acquire 50% stake in the Madhav power Private Limited

2) General Corporate Purpose

3) Public Issue Expenses

Company Financials (standalone and reinstated)

  • Company generated revenue of Rs 683 Lakhs for the year ended Mar-11 and Rs 952 Lakhs for the year ended Mar-15.  
  • Company posted a profit of Rs 6.24 Lakhs for the year ended Mar-11 and Rs 29.41 Lakhs for the year ended Mar-2015.
  • Its restated EPS for FY 2015 is Rs 12.45 and last 3 years average EPS of Rs 12.21.

Suncare Traders IPO - Financials

Reasons to invest Suncare Traders IPO

  • Consistent revenue growth in the last 5 years. Revenues have grown by 1.4 times i.e. at 9% CAGR.

Reasons not to invest in Suncare Traders IPO

  • It is generating thin and inconsistent margins. It generated 2% to 3% margins which can be wiped off with increase in costs. It earned 0.8% margins for 3 months ended Jun-15. It can move into loss in future by operating with such small margins.
  • Company is dependent only with one supplier for procurement of its products. Any dispute with the supplier or any loss of any of them might adversely affect its ability to procure material on time and might adversely affect its business.
  • Company and Director are involved in certain legal proceedings, which if determined against it, could adversely impact our business, results of operations, financial condition and prospects.
  • Company has entered into number of related party transactions, which may involve conflict of interest.
  • Company has negative cash flow in the past years.
  • Sustained negative cash flow could impact Company growth and business.
  • Deployment of the Issue Proceeds is entirely at the discretion of the issuer and is not subject to any monitoring by any Independent agency.
  • Company has unsecured loans, which are repayable on demand. Any demand from lenders for repayment of such unsecured loans, may adversely affect its business operations and financial condition of the Company.
  • Company is subject to high working capital requirements and its inability to fund these requirements in a timely manner may adversely impact its financial performance.
  • Other risk factors (Internal and external) can be viewed in prospectus Page no. 9 onwards.

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Recommendation / Investment strategy:

  • Based on its FY2015 EPS of Rs 12.45 and issue price of Rs 64, P/E Ratio works out to be 5.1x. Based on its 3 years average EPS of Rs 12.21 and issue price of Rs 64, P/E Ratio works out to be 5.24x.  Means company is asking issue price of P/E ratio in between 5.1x to 5.2x.
  • There are no listed peers in similar business, hence we cannot say whether issue price is overpriced or under priced.
  • Suncare Traders Limited revenues have grown consistently in last 5 years, however at a slow rate of 9% CAGR. It generates thin margins. It generated almost zero margins for 3 months ended Jun-15. I would not invest in such risky IPO. I would advise investors to stay away from such IPO’s.

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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Suncare Traders IPO Review


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