Aryaman Capital Markets IPO SME-Can we invest?
Aryaman Capital Markets IPO would hit the market on 25th September, 2014. This company revenues have increased by almost 6 times in just 1 year. This company has generated losses for 2 years out of last 5 financial years. What should you do with this Aryaman Capital Markets IPO in such case? Can we invest in such Aryaman Capital IPO or not? What are the risk factors to be considered before investing in Aryaman Capital Markets Limited IPO?
About Aryaman Capital Markets Limited
Aryaman Capital Markets Limited is a wholly owned subsidiary company of Aryaman Financial Services Limited (“AFSL”). AFSL is a Merchant Banker registered with SEBI since 1994. Being the wholly owned subsidiary of AFSL, Aryaman Capital Markets Limited represents and carries out the various funds based and secondary market activities of the group. They are involved in activities such as Trading and Investments in Quoted and Unquoted Securities, Underwriting Capital Market Issuances, Brokerage income from Equity/Debt Market Placements, and Market Making etc.,
Issue details of Aryaman Capital Markets IPO
- IPO opens: 25-Sep-2014
- IPO closes: 1-Oct-2014
- Face Value: Rs 10 per share
- Issue price: Rs 12 per share
- Minimum shares to be applied: 10,000 and in multiples of 10,000
- Minimum investment: Rs 120,000
- No of shares: 35.9L shares
- Issue size: Rs 4.31 Crores
- Lead Managers: BCB Brokerages (P) Limited
- Listing: BSE SME platform
- Download Aryaman Capital Markets IPO Prospectus from SEBI website here
Purpose of the IPO: The funds would be used for the following purposes.
- Investments and acquisition of the listed / unlisted securities and financial products
- Repayment of Loans
- Issue Expenses
- General Corporate Purposes
- Company generated revenue of Rs 22 Lakhs for the year ended Mar-12 and Rs 293 Lakhs for the year ended Mar-14. This company is generating revenues in the last 3 years only.
- Company posted a profit of Rs 7.96 Lakhs for the year ended Mar-12 and a profit of Rs 6.44 Lakhs for the year ended Mar-2014.
- EPS for FY2014 is Rs 0.12
- Average EPS for the past 3 years is Rs 0.08
Reasons to invest Aryaman Capital Markets IPO
- Showing good revenue growth in the last 3 years. Its jumped revenues by 6 times between FY13 to FY14.
Reasons not to invest in an Aryaman Capital Markets IPO
- This company has started generating revenues from FY 2012 onwards only. Its 6 times revenue growth in last year may not repeat in future. Revenues in the past are inconsistent.
- It has incurred losses in previous financial years FY10 and FY11.
- It has limited experience in market making.
- It has not yet identified opportunities about investing the proceeds of the issue.
- Fee based revenue dependant on a few customers in the past and would continue in future too.
- Promoter company AFSL and certain directors are party to litigations which can affect performance of the company.
- This is unlisted and small enterprise which earns Rs 6 Lakhs as profit. Investing in smaller companies would provide a limited scope of dividends for shareholders.
- Promoter AFSL have been subject to certain statutory penal actions as well as consent charges which can impact the company performance.
- Such business is exposed to risks attributable to derivatives trading.
- 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.
- Company and group companies have unsecured debt payable on demand.
- 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 12 per share, based on FY 2014 EPS of Rs 0.08, P/E Ratio works out to be 135 times. Last 3 years EPS is Rs 0.12 and P/E ratio works out to be 142. Its competitors P/E Ratio is 50.6 (Highest-NCL Res and Financial) and 2.4 (Lowest-Williamson Fin) and industry average is 16.5 Considering 135 to 142 P/E ratio of Aryaman Financial IPO for the issue price of Rs 12 is very high.
- Aryaman Capital Markets IPO has several negative factors. The company started earning revenues in the last 3 years only. Company margins are reducing in last 3 years (36% in FY12 to 2.2% in FY14) and incurred losses in FY10 and FY11. Considering several negative issues highlighted above, investors should avoid such IPO’s.
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Aryaman Capital Markets IPO (SME) -Should you subscribe
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.