Akme Star Housing Finance IPO – Should we subscribe
Rajasthan based Akme Star Housing Finance IPO would hit the market on 25th February, 2015. This is the first IPO that is hitting in 2015. Akme Star Housing Finance Limited is a housing finance company which provides home loans, construction loans etc.. Good revenue growth seen in last 5 years. Can we invest in a Akme Star Housing Finance Ltd SME IPO? What are the negative points to be considered before investing in Akme Star Housing Finance IPO?
About Akme Star Housing Finance Limited
It was incorporated in the year, 2005 with an aim to provide home loans finance to weaker sections of the society, group housing societies and NGOs engaged in the welfare of the weaker section. It is a housing finance company having its registered office in Udaipur, Rajasthan. It is registered as a housing finance company with the National Housing Bank (NHB), the housing finance regulator of India. It basically provides home loans, construction loans, loans for renovation etc.,
Issue details of Akme Star Housing Finance IPO
- IPO opens: 25-Feb-2015
- IPO closes: 5-Mar-2015
- Face Value: Rs 10 per share
- Issue price: Rs 30 per share
- Minimum investment: Rs 100,000
- No of shares issued to the public: 16 Lakh Shares
- Issue size: Rs 4.8 Crores
- Lead Managers: SARTHI CAPITAL ADVISORS PRIVATE
- Listing: BSE SME
- Download Akme Star Housing Finance IPO Prospectus from SEBI website here
Purpose of the IPO
- The funds would be used for the following purposes.
- Augmentation of capital base and meeting fund requirements for increasing operation scales
- General Corporate Purposes and
- Issue Expenses
- Company generated revenue of Rs 16.35 Lakhs for the year ended Mar-10 and Rs 137.47 Lakhs for the year ended Mar-14. It earned revenue of Rs 95.38 Lakhs for 6 months ended Sep-14.
- Company posted a profit of Rs 4.34 Lakhs for the year ended Mar-10 and a profit of Rs 36.75 Lakhs for the year ended Mar-2014. Its profits are Rs 23.78 Lakhs for 6 months ended Sep-2014.
- EPS for FY2014 is Rs 14.21
- Weighted Average EPS for the past 3 years is Rs 16.21
Reasons to invest Akme Star Housing Finance IPO
- Good revenue growth in last 5 years.
- Profits are above 23% in last 5 years. All earlier SME companies had margins of 0.5% to 5% only.
Reasons not to invest in a Akme Star Housing Finance Ltd IPO
- This Company is involved in certain legal proceeding(s). Any adverse decision in such proceeding(s) may render them liable to liabilities/penalties and may adversely affect business and results of operations.
- They are subject to NHB regulations in relation to minimum capital adequacy requirements and a decline in their CRAR will require to raise fresh capital which may not be available on favourable terms, or at all, which may affect business, results of operations and financial condition.
- They depend on the accuracy and completeness of information provided by its potential borrowers. For ascertaining the creditworthiness and encumbrances on collateral they depend on registrar and subregistrar of assurances, CIBIL, and on independent valuers and advocates in relation to the value of the collateral, and reliance on any misleading information given may affect judgement of credit worthiness of potential borrowers, and the value of and title to the collateral, which may affect business, results of operations and financial condition.
- The company’s inability to control the number and value of NPAs in the portfolio could adversely affect its business and results of operations
- Company has entered into transactions with related parties which may create conflicts of interest for their Management and Directors.
- The underlying property is the primary security for the loans disbursed by the Company. In the event of default, they may not be able to realize the expected value of the collateral on loans due to fluctuating real estate prices and/or enforce the security under the SARFAESI Act.
- This business is particularly vulnerable to volatility and mismatch in interest rates, which could be interalia due to the monetary policies of the RBI, deregulation of the financial sector in India, domestic and international economic and political conditions.
- It may have a high concentration of loans to certain customers or group of customers. If a substantial portion of these loans becomes non-performing, its business and financial performance could be affected.
- The Company faces increasing competition from other established banks and NBFCs. The successful implementation of growth plans depends on the company's ability to face this competition.
- SME IPO’s are trading below its issue price. There are also no buyers sometimes when you want to sell. Liquidity of investment is an issue.
- Complete risk factors can be read from “Risk Factors” section of the IPO prospectus from page no. 19 onwards.
Recommendation / Investment strategy
- With an issue price of Rs 30 per share, based on weighted average EPS for the past 3 years of Rs 1.85 (approx) P/E ratio works out to be 16.21. With an issue price of Rs 30 per share, based on last year, ending Mar-2014 EPS of Rs 2.11, P/E ratio works out to be 14.21. Its competitors P/E Ratio cannot be compared as Akma Star Housing Finance financials are re-stated and would not give right comparison. Hence we cannot ascertain whether issue price is right or over priced.
- Akme Star Housing Finance IPO has positive as well as negative factors. Good revenue growth, consistent profits, etc., are some of the positive factors. Regulations from NHB, involvement in legal proceedings, liquidity issues, etc., are some of the negative factors.
- IPO’s have not been performing well in recent months. Many IPO’s are trading below its issue price. Hence, one should wait and watch before investing in the IPO’s now. If these are traded with discount prices, one can invest in this IPO considering negative factors indicated above.
Disclaimer: I would not be investing in this IPO.
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Akme Star Housing Finance IPO – Should we subscribe