RJ Biotech – IPO – You can invest
Ahmedabad based RJ Biotech is coming for IPO for 25.02 Lakh Shares @ a face value of Rs 10 each with a premium of Rs 10 and issue price of Rs 20 per share aggregating to Rs 5 Crores capital. All past SME IPO’s had several drawbacks. Such companies have been running on thin margins. However there are good positive factors in RJ Biotech IPO. In this article, I would elaborate about RJ Biotech, its performance and whether investor should apply for RJ Biotech IPO or not?
About RJ Biotech
RJ Biotech is Aurangabad based agri bio-technology Company focusing on crop genetics and development of superior hybrids. This company is engaged in research, crop improvement, production and marketing of superior quality hybrid seeds in 8 field crops and 16 vegetable crops. RJ Biotech IPO would be listed in BSE SME platform.
- IPO opens: 10-Sep-2013
- IPO closes: 12-Sep-2013
- Face value: Rs 10
- Issue price: Rs 20
- Minimum bid: 6,000 shares and in multiples of 6,000 shares thereon
- Minimum investment: Rs 120,000
- Lead managers: Sarthi Capital Advisors Private Limited
- Registrar: Bigshare Services Private Ltd
- Listing: BSE SME
- Prospectus: http://www.rjbiotech.com/RJ%20BiotechProspectus28-08-2013.pdf
Purpose of the IPO: The funds would be used for the following purposes.
- Working capital requirements
- Issue expenses
- Company revenues have grown from Rs 550.01 Lakhs for year ended Mar-2009 to Rs 1,985.19 Lakhs for the year ended Mar-2013.
- Coming to profits, company has posted 3.64% margin for year ended Mar-2009 and 6.57% for the year ended Mar-2013.
Reasons to invest RJ Biotech IPO
- Good revenue growth. Revenue grown to 3.5 times in last 5 years.
- Good profit improvement from 3.64% to 6.57%. Major SME IPO’s which are issued in last 8 months are having thin margins between 0.5% to 2.5%. This makes this IPO attractive.
- As regard to stock price valuations, the company issue price Rs 20 per share. It is trading at 10.26x its annualized EPS Rs 1.95. Its peer companies such as Camson Bio Technologies, Kaveri Seed Company, Monsanto India, Advanta India and Titan Biotech are trading at 4.91x, 130.57x, 18.19x, 28.3x, 6x of their TTM EPS respectively.
- Hybrid technology yields good quality products and provides good worth to farmers. Government is also taking initiatives to boost good quality and hybrid crop production and helping farmers in this regard. Moreover, company has also tie-ups with the farmers for crop production, which gives an advantage to companies like RJ Biotech.
Reasons not to invest in RJ Biotech IPO
- Negative cash flows for 4 years out of last 5 years. This makes such company to borrow funds for short term and pay high interest rates. Profits can reduce due to high interest payment.
- Such SME company performance can turn negative as the company has formed in less than 10 years period and we need to see sustainability of such revenue and profit growth.
- The SME IPO’s listed are trading with very low volume and the liquidity has been a problem.
- The minimum investment required is Rs 1.20 lakhs.
Recommendation / Investment strategy: Average EPS for the last 3 years is Rs 1.50. The EPS for the year ended Mar-2013 is Rs 1.95. Company runs on good margins compared to other SME IPO’s which came earlier. While there are some negative points, considering, good industry growth, revenue growth story of the company and good margins, one can subscribe to this RJ Biotech IPO.
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RJ Biotech IPO
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