O P Chains Ltd SME IPO – Should we invest?
O.P. Chains Ltd IPO would open for subscription today, i.e. 30th March, 2015. I have been ignoring some of these SME IPO’s, however readers are kept on asking to review them. O.P. Chains Ltd is a reputed name in trading of bullion (Gold & Silver) in Agra, Uttar Pradesh has a client base in Agra and Delhi. This company revenue dropped in the last 5 years. Should you invest in O.P. Chains Ltd IPO? What are the risk factors to be considered before you invest in such SME IPO’s?
About O.P. Chains Limited
O.P. Chains Limited reputed name in trading of bullion (Gold & Silver) in Agra, Uttar Pradesh has a client base in Agra and Delhi. They are bullion traders, specializing in bars and coins of various sizes and weights of Gold and Silver and offer wholesale delivery of bullion to domestic users i.e. ornament manufacturers, goldsmiths, jewelers and semi-wholesalers. Company is member of “The Gem & Jewellery Export Promotion Council”.
It operates as an intermediary in bullion trading market of Agra, Uttar Pradesh whereby it purchases materials such as Gold & Silver from State Trading Corporation of India, Hindustan Zinc Limited, ICICI Bank Limited, Punjab National Bank Limited and supply the same to its customers in the Jewelry industry and related business. Its end customers are mainly ornament manufacturers, goldsmiths, jewelers and semi-wholesalers.
In the year 2011, this company entered into real estate sector by becoming a partner of partnership firm viz. M/s. Ashok Housing and M/s. O. P. Chains to construct residential apartments and commercial spaces.
Issue details of O.P. Chains IPO
- IPO opens: 30-March-2015
- IPO closes: 8-April-2015
- Face Value: Rs 10 per share
- Issue price: Rs 11 per share
- Minimum investment: Rs 100,000
- No of shares: 18.5 Lakhs shares
- Issue size: Rs 203.5 Lakhs
- Lead Managers: HEM Securities Ltd
- Listing: BSE SME platform
- Download O.P. Chains IPO Prospectus from SEBI website here
Purpose of the IPO: The funds would be used for the following purposes.
- To Meet working capital requirements
- General Corporate Purpose
- To Meet the Issue Expenses
- Company generated revenue of Rs 567.82 Crores for the year ended Mar-10 and Rs 259.18 Crores for the year ended Mar-14.
- Company posted a profit of Rs 77 Lakhs for the year ended Mar-10 and a profit of Rs 11.42 Lakhs for the year ended Mar-14.
- EPS for FY2014 is Rs 0.23 and last 3 years average is Rs 0.20
Reasons to invest O.P. Chains IPO
- Signs of improving the revenues in the last 2.5 years.
Reasons not to invest in a O.P. Chains IPO
- Negative revenue growth in the last 5 years. Revenue dipped almost 50% in the last financial year compared to 5 years back revenue.
- Profits are very thin. Its margins are around 0.1% of revenues. Such small margins can easily wipe-out with fluctuations in gold prices.
- Company and Promoter Group Entities are involved in certain legal proceedings, which, if determined against us, could adversely impact its business, results of operations, financial condition and prospects.
- It requires a number of approvals, licenses; registration and permits for business, and failure to obtain or renew them in a timely manner may adversely affect its operations.
- Books of accounts of its company and that of one of its promoter group entity have been impounded by the Income tax authorities and not sure of any further action that may be taken against company or any penalty that might be imposed on company in respect of said action by the Authority
- Non–compliance of terms & conditions mentioned in auction documents of land purchased from Agra Development Authority, Agra
- Company has invested in Partnership Firms engaged in similar activities as that of the Company.
- Company’s investment in the said firms might or might not prove to be profitable.
- Company has not made any provision for a decline in the value of its investments in the partnership firms. Any setback in the business of partnership firms might adversely affect its business.
- Non-renewal and failure to obtain statutory and regulatory permissions and approvals required to operate its business may have a material adverse effect on its business.
- Some of its Group Companies are having negative Networth and have incurred losses in past and are non operational.
- It has entered into certain transactions with related parties. These transactions or any future transactions with its related parties could potentially involve conflicts of interest.
- Its Promoters may have a conflict of interest as some of its Group Entities operate in related areas of business. In the case of any conflict, its Promoters may favor the interest of its Group entities over the company.
- Net cash flows from operating, investing and financing activities have been negative in the past. Any negative cash flow in the future may affect its liquidity and financial condition.
- 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.
- Minimum investment is Rs 1 Lakh is difficult for a small investor to invest in such IPO’s.
Recommendation / Investment strategy
- On an issue price of Rs 11 per share, based on FY 2014 EPS of Rs 0.23, P/E Ratio works out to be 48 times (approx). Based on last 3 years average EPS of Rs 0.20, P/E ratio works out to be 55 (approx). There are no industry standard or competitors who are in a similar line of business to compare whether the share prices is under priced or overpriced.
- While revenues are in the growing trend in last 2.5 years, O.P. Chains IPO has several negative factors. Inconsistent revenue growth, very thin margins, negative cash flows, etc. are some of the negative factors. Investors would not get anything in the coming years due to thin margins of this company.
- Considering several negative factors, I would advise investors not to invest in such IPO’s.
Disclaimer: I am not investing in this IPO and would not be investing in coming months after listing on stock exchanges.
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O P Chains Ltd SME IPO – Should we invest
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.