Bhanderi Infracon Limited is coming up with a public issue IPO of 5.40 L Shares and raising Rs 6.48 Crores. Bhanderi Infracon IPO is priced at Rs 120 per share. There are several positive points about this SME IPO. What should be your call on this SME IPO? Should you invest in Bhanderi Infracon IPO or not? What are the risk factors you should consider if you want to subscribe to this SME IPO?
About Bhanderi Infracon Limited
Bhanderi Infracon Limited, a Real Estate Development Company, was incorporated in the year 2004. Its Promoters, Mr. Dhirubhai Patel and Mr. Sunil Patel, established real estate developers, have over 25 years of experience in the real estate sector. The Company was taken over with an idea to develop untapped opportunities viz. buying, selling, development, re-development of properties, investments in joint ventures, investment in partnerships, investment in completed / partially completed / upcoming projects etc.
Issue details of Bhanderi Infracon IPO
- IPO opens: 22-July-2014
- IPO closes: 25-July-2014
- Face value: Rs 10 per share
- Issue price: Rs 120 per share
- Minimum investment: Rs 144,000
- No of shares: 5.4 Lakh shares
- Issue size: Rs 6.48 Crores
- Lead Managers: Choice Capital Advisors Limited
- Listing: BSE SME platform
Download Bhanderi Infracon IPO Prospectus from SEBI website here
Purpose of the IPO: The funds would be used for the following purposes.
- To meet the incremental working capital requirements
- To meet the expenses towards general corporate purposes.
- To meet the Issue Expense.
- Company generated revenue of Rs 85.11 Lakhs for the year ended Mar-09 and Rs 71.47 Lakhs for the year ended Mar-13. Means, it has not grown in last 5 years. However, it recorded revenues of Rs 105.72 for 10 months ended Jan-2014.
- Company posted a profit of Rs 8.17 Lakhs for the year ended Mar-09 and a profit of Rs 9.20 Lakhs for the year ended Mar-2013. First 10 months of this financial year (ended Jan-2014) it made a profit of Rs 13.21 Lakhs.
Reasons to invest Bhanderi Infracon IPO
- Though company has not grown in last 5 years, it had shown good revenue growth in the last 20 months. It recorded revenue of Rs 105.72 for 10 months ended Jan-2014 (data not available for Feb and Mar-14)
- Consistently making more than 12.5% margins in last 2 financial years and 10 months ended Jan-2014. All SME’s which came for IPO’s are earning 2% to 5% margins, hence I felt such high margins for this company are good.
Reasons not to invest in an Bhanderi Infracon IPO
- There are 3 outstanding legal proceedings against this company. They are a) Company involved in mutation entry done in land acquired by the company b) Appeal pending towards in appropriate compensation for land acquired by Ahmedabad Municipal Corporation c) Appeal pending at Highcourt for challenging notice of demolition issued by Ahmedabad Municipal Corporation.
- Not complied with statutory obligations for day to day transactions in the past.
- It has negative cash flows in 4 out of 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.
- Some of the promoters have given an unsecured loan totaling to Rs 1029 Lakhs which is payable on demand. If the promoters demand, this needs to be paid immediately and cash flow of the company can impact.
- High working capital required for running the day to day operations. It may need to depend on short term loans paying high interest
- SME IPO’s are trading on low volume. Liquidity of such shares could be an issue. Stock brokers can easily manipulate the price of the stock.
Recommendation / Investment strategy:
- On an issue price of Rs 120, based on FY 2013 EPS of Rs 0.87, P/E Ratio works out to be 138 times. Based on last 3 years Avg EPS of Rs 0.51, P/E ratio works out to be 235. Its competitors P/E Ratio Sunteck Realty is 123.70 (Highest) and Ansal Housing is 2.80 (Lowest) and average at construction industry level is 20. Considering 138 or 235 P/E ratio of Bhanderi Infracon IPO, it shows the issue price is very high.
- Bhanderi Infracon IPO has several positive and negative factors. Strong revenue growth in the last 34 months, good margin of 12.5% + etc. are positive factors. On the other side, it has several negative factors and even if we keep them aside, the issue price is very high. I personally do not invest at this time. Once shares are listed and in case there is a dip in share price and available at discounted price, one can look at investing in such shares after considering the negative factors indicated above.
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Bhanderi Infracon IPO (SME)
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