Jiya Eco Products IPO – Should you subscribe?
Jiya Eco Products IPO would open for subscription on 29th June, 2015. Jiya Eco Products is engaged in industrial production of Bio-Fuel and Biomass Pellets. It plans to raise Rs 4.58 Crores through this IPO. This company has unique business model and growing at faster pace. It has increased revenues by 15 times in last 3 years. What are the positive factors in Jiya Eco Products Ltd IPO?. Should you invest in this Jiya Eco Products IPO? What are the risk factors to be considered before you invest in a such IPO’s?
About Jiya Eco Products Limited
This Company, an ISO 9001:2008 certified is engaged in the manufacturing of bio-fuels viz. biobriquettes and bio-pellets which is an alternative source of energy and has the ability to replace/are fairly good substitutes of traditional fossil fuels like coal, firewood, lignite, etc.
Issue details of Jiya Eco Products IPO
- IPO opens: 29-Jun-2015
- IPO closes: 2-Jul-2015
- Face Value: Rs 10 per share
- Issue price: Rs 19 per share
- Minimum Shares: 6000 shares and in multiples of 6000 shares there-off
- Minimum amount: Rs 114,000
- Issue size: Rs 4.58 Crores
- Lead Managers: Pantomath Capital Advisors (P) Ltd
- Listing: BSE SME
- Download Jiya Eco Products Limited IPO Prospectus from SEBI website here
Purpose of the IPO
- Funds would be used for following purpose
- Procurement of new machinery.
- Working capital requirement.
- Company generated revenue of Rs 1 Lakh for the year ended Mar-12 and Rs 1,401.95 Lakhs for the year ended Mar-14. It earned revenue of Rs 2,046 Lakhs for 9 months ended Dec-14.
- Company posted a Loss of Rs 0.83 Lakhs for the year ended Mar-12 and a Profit of Rs 104.89 Lakhs for the year ended Mar-2014. Its profit is Rs 240.13 Lakhs for the 9 months ended Dec-2014.
- Its diluted EPS for FY 2013-14 is Rs 3.25 and weighted Avg EPS is Rs 2.67. Diluted EPS for nine months ended Dec-2014 is Rs 4.27.
Reasons to invest Jiya Eco Products IPO
- Good revenue growth in last 3 years. If we annualize 9 months revenue of FY 2014-15 to entire year, it would cross Rs 2,500 Lakhs. This indicates that company has grown almost 15 times in last 3 years.
- Good margin of 7.5%. Majority of SME companies which came for IPO has been with less margins of 1% to 4%.
Reasons not to invest in a Jiya Eco Products IPO
- Bio-Fuel Production and Manufacturing is relatively new concept in India and is yet to have a defined market.
- Company may face resistance to change from existing users of conventional fossil fuel.
- Limited operating history and yet to achieve scalable operations.
- Majorly concentrated from Gujarat and any adverse developments affecting such location could have impact on company revenues and margins.
- No entry barriers in bio-fuel production market. This may attract new players to enter into market and they may pose competition to this company.
- Company need to maintain high volume of wastes (raw material required for production) and any cyclone and heavy rainfall can cause significant damage to company.
- Company has negative cash flows in last 3 years. This implies company borrowing money for high interest rates and its margins would get affected.
- Company does not have long term contracts.
- Its group entity, Sahej Chemical Industries have been forcefully shut down by Gujarat Pollution Control Board. This indicates poor promoter capabilities.
- Minimum investment required is Rs 1.14 Lakhs to subscribe to this IPO.
- Other risk factors (Internal and external) can be viewed in prospectus Page no. 17 onwards.
Also Read: Best ELSS Mutual Funds to invest in 2015
Recommendation / Investment strategy
- At an issue price of Rs 19 and EPS for FY 2013-14 of Rs 3.25, P/E Ratio works out to be 5.85. At an issue price of Rs 19 and weighted average EPS of Rs 2.67, P/E Ratio works out to be 7.13.
- Means, company is asking for share price where P/E ratio is between 5.85 to 7.13 There is no listed company exclusively in similar business, hence we cannot compare whether the share price is high or low. However, its NAV before the issue is 18.90 and after IPO issue, it would be 17.63. Hence, we can assume issue price is reasonably priced.
- Jiya Eco Products Limited revenues show good improvement in last 3 years. Margins are also impressive. Considering risk factors indicated above, one can subscribe to this IPO. This unique business model can make this company successful and I hope investors of this IPO would enjoy good returns.
Disclaimer: I have interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.
If you enjoyed this article, share it with your friends and colleagues through Face book and Twitter.
Jiya Eco Products IPO – Should you subscribe