Vishal Fabrics SME IPO-Should you buy?
Vishal Fabrics SME IPO-Should you buy?
Vishal Fabrics Limited is coming up with an IPO of 34.74 Lakh shares. Vishal Fabrics SME IPO would open for subscription on 31st July, 2014. This company earned revenues of Rs 183.35 Crores for the year ended Mar-2013. It is showing a good revenue growth in the last few years. Should you invest in a Vishal Fabrics IPO or not? What are the risks you should consider if you want to invest in a Vishal Fabrics IPO?
About Vishal Fabrics Limited
Vishal Fabrics Limited is engaged in the business of dyeing, printing and processing of fabrics of its own and also on job work basis. This company procures mainly Grey Fabric and dyes, prints and finishes the same as per the client’s requirements. The processing unit is based in Narol, Ahmedabad, Gujarat. The plant has the capacity to print, dye and process a wide range of fabrics i.e. cotton, polyester, viscose and man-made & blended fabrics suitable for men’s wear, women’s wear, home furnishing and many other applications.
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Issue details of Vishal Fabrics IPO
- IPO opens: 31-Jul-2014
- IPO closes: 5-Aug-2014
- Issue price: Rs 45 per share
- Minimum Shares: 3,000
- Minimum investment: Rs 135,000
- No. of shares open for subscription: 34.74 Lakh shares
- Issue size: Rs 15.63 Crores
- Lead Managers: Aryaman Financial Services Limited
- Listing: BSE SME platform
- Download Vishal Fabrics IPO Prospectus from BSE website here
Purpose of the IPO: The funds would be used for the following purposes.
- Funding Long Term Working Capital Requirements and
- Funding expenditure for General Corporate Purposes
- Company generated revenue of Rs 13,615 Lakhs for the year ended Mar-09 and Rs 18,335 Lakhs for the year ended Mar-13. It has generated revenue of Rs 13,569 Lakhs for 9 months ended Dec-2013.
- Company posted a profit or Rs 326 Lakhs for the year ended Mar-09 and a profit of Rs 206.78 Lakhs for the year ended Mar-2013. First 9 months of this financial year ended Dec-2013 it made a profit of Rs 211.68 Lakhs.
Reasons to invest Vishal Fabrics IPO
- Good revenue growth of Rs 136 Crores in FY 2009 to Rs 183 Crores in FY 2013. Nine months ended Dec-13, it made Rs 136 Crores.
- Profits are increasing from FY 2012 onwards. Though there is a dip in profits in FY2012, it is showing consistent growth now.
Reasons not to invest in Vishal Fabrics IPO
- Outstanding legal proceedings involving company, promoters and group entities. Any negative outcome, can impact the company performance.
- Group company, CIL Nova Petrochemicals has been banned by SEBI in past from accessing capital markets.
- No long term contracts to supply Grey fabric.
- It has unsecured loans to the tune of Rs 11.30 Crores which are payable on demand. Any demand can impact its financial performance.
- It has negative cash flows in 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.
- Such business requires high working capital requirements.
- 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
- Its average EPS in the last 3 years ending Mar-2013 is Rs 1.92. Its EPS for year ended Mar-13 is 2.25 and 9 months ended is Rs 2.30. Considering the issue price of Rs 45 this, the P/E Ratio based on average EPS of 3 years works out to be 23, P/E ratio based on EPS of the year ended Mar-13 would be 20 and based on Dec-13 EPS would be 20. Means its issue price P/E ratio works out in between 20 to 23.
- Its competitors like Morarjee Textiles P/E Ratio is 1013 (highest) and Alok Industries is 1.4 (lowest). The industry average P/E Ratio is 5.90. Hence the issue price of Rs 45 for Vishal Fabrics IPO is very very high.
- Vishal Fabrics Limited IPO has some good positive factors. Its revenues are consistently growing. Profits in the last 3 years shows improvement. However the issue price of Rs 45 is very high. Instead of buying at this issue price, once this IPO is listed and available at discounted price, on can look to invest in this stock after considering minimum investment factor of Rs 135,000 and other risk factors.
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Vishal Fabrics SME IPO – Should you buy
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 in future.