Oceanaa Biotek Industries IPO-Should you subscribe?
Chennai based Oceanaa Biotek Industries SME IPO would hit the market today (18-March-2014). It generated 30% profit margins in 6 months ended Sep-2013. Revenue jumped by 3300% in the last financial year (FY 2012-13) and 174% (annualized) in this financial year (FY 2013-14). Everything looks good and happy. What are the hidden facts about this company? Should you buy Oceanaa Biotek Industries IPO ? What should be your take on Oceanaa Biotek IPO?
About Oceanaa Biotek Industries
Chennai based Oceanaa Biotek Industries is specialized in food testing laboratory.
Issue details of Oceanaa Biotek Industries IPO
- IPO opens: 18-Mar-2014
- IPO closes: 20-Mar-2014
- Face value: Rs 10 per share
- Issue price: Rs 10 per share
- Minimum bid: 10,000 shares
- Minimum investment: Rs 100,000
- Maximum investment by retail investors: Rs 200,000
- Listing: BSE SME
- Download Oceanaa Biotek Industries Prospectus from at this link
Purpose of the IPO: The funds would be used for the following purposes.
- To setup food testing analysis lab
- Issue expenses
- Company has posted revenue of Rs 1 Lakh for the year ended Mar-2012 and Rs 34 Lakhs for the year ended Mar-2013. First 6 months of this financial (FY 2013-14) year it made a revenue of Rs 63.58 Lakhs.
- The company has posted a LOSS of Rs 1.44 Lakhs for the year ended Mar-12 Vs profit of Rs 2.84 Lakhs for the year ended Mar-2013. First 6 months of this financial year (FY 2013-14) it made a profit of Rs 18.55 Lakhs.
Reasons to invest in the IPO of Oceanaa Biotek Industries
- Good revenue growth in last two years. Revenues increased from Rs 1 Lakh from FY 2012-13 to Rs 63.58 Lakhs for 6 months of this financial year (FY 2013-14). If we assume a similar growth, we can predict that it can make Rs 126 Lakhs revenue for FY 2013-14.
- Good margin of 29%. If these profits can continue, investors can expect good dividends in the coming years.
Reasons not to invest in Oceanaa Biotek IPO
- There is no revenue for 2 financial years out of 5 financial years
- It incurred loss for 3 financial years out of 5 financial years.
- Its profits jumped from 2.84% (FY 2012-13) to 29.18% (6 months ended Sep-2013). We need to wait and see whether it would sustain such high margins.
- SME IPO’s are trading in low volumes. Liquidity could be an issue.
Also Read: How to double your money ?
Recommendation / Investment strategy:
- Average EPS for the last 3 years is (Rs 3.06 negative). Based on last financial year 2012-13 EPS of Rs 10.55, P/E ratio works out to be <1. For 6 months of FY 2013-14 EPS shows 0.60 (not annualized) which translates the P/E ratio of 16+. Its competitors like Vimta Labs P/E ratio is 10.9 (high) and an Choksi Laboratories P/E ratio is 7.05 (Low). Since company cannot issue shares below this issue price of Rs 10, investors might get tempted to buy at this rate. However, at a P/E ratio of 16+ based on 6 moths revenue in this financial year looks very expensive.
- While company revenues and profits are growing aggressively in last 2 years, considering inconsistent performance and high issue price, my suggestion to investors is to stay away from such IPO. After a year, if the performance continues and this stock is available at lesser price of Rs 5 per share or below, one can look at buying at such levels.
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Oceanaa Biotek Industries IPO