Delhi based Dhanuka commercial Limited is coming up with an IPO. Dhanuka Commercial SME IPO would open for subscription from 22nd May, 2014. This NBFC company has revenue of Rs 105 Lakhs and a profit of Rs 9 Lakhs in FY2012-13. Can you bet on Dhanuka Commercial SME IPO? How does the financial look? What are the negative points of Dhanuka Commercial IPO ?
About Dhanuka Commercial Limited
Dhanuka Commercial is an NBFC registered company with an RBI. It is a Non Deposit taking Non-Banking Finance Company engaged primarily in the business of advancing loans for investing/trading in securities. The business is similar to SPS Finquest where the IPO is opening today (21st May, 2014)
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Issue details of Dhanuka Commercial SME IPO
- IPO opens: 22-May-2014
- IPO closes: 28-May-2014
- Face value: Rs 10 per share
- Issue price: Rs 10 per share
- Minimum bid: 10,000 shares and multiples of 10,000 shares thereon
- Minimum investment: Rs 100,000
- Listing: BSE SME platform
- Lead Managers: Aryaman Financial Services Limited
- Download Dhanuka Commercial SME IPO Prospectus here
Purpose of the IPO: The funds would be used for the following purposes.
- To augment our capital base and provide for fund requirements for increasing operational scale with respect to NBFC activities
- To meet issue related expenses
- The company has posted revenue of Rs 521 Lakhs for the year ended Mar-2009 and Rs 124.38 Lakhs for the year ended Mar-2013. First 9 months of this financial year (ended Dec-2013) it made a revenue of Rs 103.52 Lakhs.
- The company has posted a profit of Rs 0.34 Lakhs for the year ended Mar-09 and profit of Rs 8.6 Lakhs for the year ended Mar-2013. First 9 months of this financial year (ended Dec-2013) it made a profit of Rs 30.7 Lakhs.
Reasons to invest Dhanuka Commercial SME IPO
Reasons not to invest in Dhanuka Commercial SME IPO
- The company posted a loss of Rs 16.62 Lakhs in FY 2010-11.
- NBFC companies face the risk of defaults and nonpayment, which would impact its profits. Company has written-off Rs 14.8 Lakhs in FY 2012-13 which is 1.15% of the total loan portfolio.
- Highly dependable on promoter performance. Its group companies like GG Recreation, SSM Commodities, Dev Soft has incurred loss in the last few years. This indicates poor management capabilities.
- It has negative cash flows in last 5 years. This indicates that it need to borrow loans for high rate of interest and has difficulty in managing working capital requirements. This would affect the profits of the company.
- Too much dependancy on top-10 customers, which contribute to 70% of company revenues. This poses risks to the business.
- Short term loans in nature, hence no long term sustainable income
- Face intense competitions in the business which may limit the growth
- SME shares are trading at low volumes. Liquidity of such shares could be an issue.
Recommendation / Investment strategy:
- Based on last financial year EPS of Rs 0.07, the issue price of Rs 10 per share, P/E ratio works out to be 143. Last 3 years EPS of Rs 0.02 translates the P/E ratio to 500. Even last 9 months EPS of Rs 0.25 translates to a P/E ratio of 40. The P/E ratio of its competitors Bajaj Finserv is 158.7 (Highest) and Nahar Capital is 3.3 (Lowest). Average at the industry level is 13.40. Though company cannot issue shares below Rs 10 per share, the issue price of Rs 10 is very high.
- Company revenues are inconsistent. In FY 2010 it earned revenues of Rs 1321 Lakhs, however, in FY 2013, it earned just Rs 124.38 Lakhs. It has negative revenue growth in FY2011 and FY2013.
- Considering inconsistent revenues, poor past record and high issue price, investors should be very cautious about investing in such IPO’s.
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Dhanuka Commercial SME IPO
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