Carewell Industries SME IPO-Should we buy?
Carewell Industries Limited is coming up with a public issue IPO of 33.04 L Shares and raising Rs 4.95 Crores. Carewell Industries IPO would start from today, i.e. 25th July, 2014. Carewell Industries IPO issue price is Rs 15 though it earned just Rs 5 Lakhs in 11 months ended Feb-2014. There are several negative factors in Carewell Industries IPO. What are the risks involved in Carewell Industries SME IPO? Why investors should read this article so that they do not dump money in such high risk investments.
About Carewell Industries Limited
Carewell Industries Limited (formerly PL Chemicals Private Limited) is engaged in marketing the mosquito repellent coils under the brand “ROOSTER”. They operate in Household Insecticide Industry. The brand name “ROOSTER” is owned by our Company through its wholly owned subsidiary, CKM Homecare Solutions Private Limited. We are also engaged in the marketing of incense sticks (agarbattis) in the brand name “Deo” and “Samraj”. They get their products manufactured from third party manufacturers under our own brand and market it through our network of dealers and distributors. Currently, their products are sold in South India and primarily Tamil Nadu.
Issue details of Carewell Industries IPO
- IPO opens: 25-July-2014
- IPO closes: 30-July-2014
- Issue price: Rs 15 per share
- Minimum investment: Rs 100,000
- No of shares: 33.04 Lakh shares
- Issue size: Rs 4.95 Crores
- Lead Managers: Inventure Merchant Banker Services Pvt. Ltd
- Listing: BSE SME platform
- Download Carewell Industries IPO Prospectus from SEBI website here
Purpose of the IPO: The funds would be used for the following purposes.
- Brand Building
- Meeting Additional Working Capital Requirements
- Meeting Public Issue Expenses
- Company generated revenue of Rs 17.1 Lakhs for the year ended Mar-12 and Rs 107.9 Lakhs for the year ended Mar-13. It has generated revenue of Rs 88.21 for 11 months ended Feb-2014.
- Company posted a loss of Rs 1.45 Lakhs for the year ended Mar-12 and a profit of Rs 0.08 Lakhs (yes, it is just Rs 8,000) for the year ended Mar-2013. First 11 months of this financial year ended Feb-2014 it made a profit of Rs 5.47 Lakhs.
Reasons to invest Carewell Industries IPO
Reasons not to invest in an Carewell Industries IPO
- Company is generating revenues for the past 3 years only. Unless the revenues are sustained for another 1 or 2 years, there is risk imagining that such revenues would continue and grow further.
- Company has generated profits of Rs 8,000 for the financial year ended Mar-2013. It generated Rs 5 Lakhs for 11 months ended Feb-2014. It is high risk to invest in such companies which generate thin profits.
- Company has received summon in Jun-2014 from Dy. Director of Income Tax and CFO were asked to present. This is still pending. Any negative outcome or tax demand, can affect the company.
- It has negative cash flows in 3 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.
- Business is concentrated in South India. Limited scope for expansion of business.
- 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 15, based on FY 2013 EPS of Rs 0.01, P/E Ratio works out to be 1500 times. Since it has generated loss in previous years, we cannot compare 3 years Avg EPS. Its nearest competitor Ambica Agarbattis P/E Ratio is just 6.71. The issue price of Rs 15 for Carewell Industries IPO is very very high.
- Carewell Industries IPO has several negative factors. Though it started generating revenues in last 2 years, there are no profits and hence investors would not get anything in return. I do not know how such a loss making company or company which generated Rs 5 Lakhs as a profit last financial year can demand Rs 15 issue price. Investors should be very, very cautious and should avoid such IPO’s.
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Carewell Industries SME IPO
Note: I have seen some comments on my blog indicating that I reject the majority of SME IPO’s which are coming to public for investments. While on this blog (myinvestmentideas.com) I aim to explore best investment options and best saving ideas, I felt it was equally important that I should tell “What are bad investments” too. Investors should not get into a trap and burn their fingers. I welcome any suggestions to improve these SME IPO articles.