NCML Industries IPO – Should we subscribe to this IPO?
Delhi based NCML Industries Limited IPO would hit the market on 29th December, 2014. NCML Industries Limited is a leading edible oil importing, manufacturing and marketing company in India. There are several positive factors in NCML Industries IPO. Can we invest in a NCML Industries Ltd IPO? What are the negative points to be considered before investing in NCML Industries IPO? This post is updated on 3-Jan-2015 as there is change in end date of this IPO and revised price band due to poor response.
About NCML Industries Limited
In the FY 1999-2000, its first brand “MAANIK” was launched by its group company Newal Chand Mohan Lal & Co. (Partnership Firm) for refined vegetable oil. Till 2003-04, this Company was mainly engaged in trading of Palm oil, Soya bean oil, Mustard oil, etc which was purely procured from domestic market. It started importing Vansaspati Oil in the FY 2003-04. Its Promoter Company N M Agro Private Limited, registered its brand, namely “SHAN” for edible oil, edible fats and preserves and “MOT” for refined Mustard Oil in respect of transport, packing, and storage of goods. Till, February 2012 a part of the retail distribution was carried out by its promoter company under the aforesaid brands. NCML Industries Limited has then emerged as a leading edible oil importing, manufacturing and marketing company in India
Issue details of NCML Industries IPO
- IPO opens: 29-Dec-2014
- IPO closes: 9-Jan-2015
- Face Value: Rs 10 per share
- Revised Price Band: Rs 80 – Rs 90 per share(old price band was Rs 100-Rs 120), revised due to poor response.
- Minimum shares to be applied: 125 shares
- Minimum investment: Rs 12,500 – Rs 15,000
- No of shares issued: 60 Lakh Shares
- Issue size: Rs 60 Crores to 72 Crores.
- Lead Managers: Corporate Strategic Allianz Limited
- Listing: BSE and NSE
- Download NCML Industries IPO Prospectus from NSE website here
Purpose of the IPO
The funds would be used for the following purposes.
- To carry out the sale of 60 Lakh Equity Shares by the Selling Shareholders.
- To achieve the benefits of listing the Equity Shares on the Stock Exchanges.
- Offer expenses
- Company will not receive any proceeds of the Offer and all the proceeds will go to the Selling Shareholders
- Company generated revenue of Rs 703.24 Crores for the year ended Mar-10 and Rs 2,767.26 Crores for the year ended Mar-14. It earned revenue of Rs 881.69 Crores for 3 months ended Jun-14.
- Company posted a profit of Rs 9.61 Crores for the year ended Mar-10 and a profit of Rs 55.22 Crores for the year ended Mar-2014. Its profits are Rs 6.64 Crores for 3 months ended Jun-2014.
- EPS for FY2014 is Rs 23.45
- Weighted Average EPS for the past 3 years is Rs 21.93
Reasons to invest NCML Industries IPO
- Good revenue growth in last 4 years.
- Consistent EPS in the last 4 years.
Reasons not to invest in a NCML Industries Ltd IPO
- Profits are thin. It has earned 2% margins only in the last 4 years. Though the revenues has zoomed to Rs 2,767 Crores, earning such thin margins, shareholders would not get any higher dividends.
- ICRA rated “IPO Grading 3” means average fundamentals.
- Company depends significantly on imports of raw materials in addition to domestic suppliers.
- They have given a corporate guarantee in relation to certain debt facilities to its group companies which, if claimed, may require to pay the guaranteed amount.
- It has Limited Experience in the manufacturing activities.
- Company is involved in a number of legal proceedings amounting to Rs 1,163.81 Lacs against its promoter/directors and company, which, if determined against them, could adversely affect its business and financial condition.
- Company has negative cash flow (On standalone basis) in the past years. Sustained negative cash flow could impact its growth and business.
- Company has certain contingent liabilities which may adversely affect its financial position.
- There has been a conflict of Interest wherein its promoter company and its group companies are involved in the same line of activity in which this company is involved.
- Its Group Companies have incurred losses in the past.
- It does not have long-term contracts with suppliers and typically operate on the basis of purchase orders.
- Limited geographical and marketing set up
- Complete risk factors can be read from “Risk Factors” section of the IPO prospectus from page no. 13 onwards.
Recommendation / Investment strategy
- With an upper band of issue price of Rs 90 per share, based on weighted average EPS for the past 3 years of Rs 22 (approx) P/E ratio works out to be 4. Its competitors P/E Ratio is 33.4 (Highest-Agro Tech Foods Limited) and 5.8 (Lowest-Gujarat Ambuja Exports Limited) and the industry composite is 13. The upper price band of issue price of Rs 90 per share looks reasonably priced.
- NCML Industries IPO has positive as well as negative factors. Good revenue growth, consistent EPS, reasonable issue price are some of the positive factors. Thin Profits, IPO Grading-3 by ICRA and other risk factors indicated above are negative points. Investor sentiment towards IPO investments has reduced in recent IPO’s like Monte Carlo Fashions, Sharda Cropchem etc., Currently some of the recent IPO's are trading below its issue price. Considering this, investors should wait and watch this IPO.
Disclaimer: I have no plans to invest in this IPO
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NCML Industries IPO – Should we subscribe to this IPO