Mangalam Seeds IPO – Should you invest?
Mangalam Seeds IPO will open for subscription on 29th July 2015. Mangalam Seeds Limited is mainly engaged into the business of providing loan and advances. Its revenues grown by 2.5 times in last 3 years. It earned 7% profits for the year FY2014-15. What are positive factors of Mangalam Seeds Ltd IPO? What are the hidden factors in Mangalam Seeds IPO? Should you invest in this Mangalam Seeds IPO or not?
About Mangalam Seeds Limited
The company is offering a wide range of seeds categorized as "research seeds" and "hybrid seeds". Research seeds are high quality seeds, been produced by a backward integration process and offers natural nutrient qualities. These seeds require intensive research and are also called as pure seeds. Hybrid seeds on the other hand, are produced through open pollination and cross pollination process. As on date company has developed 16 varieties of seeds. Further Company has a collection of around 976 varieties of germplasm in various crops. Company products are being marketed under various brand names like Eklavya, Volina, Leetos, Juddo etc. Currently Company has obtained 15 trademarks and already applied for 55 others to secure these brand names and logos.
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Issue details of Mangalam Seeds IPO
- IPO opens: 29-Jul-2015
- IPO closes: 31-Jul-2015
- Face Value: Rs 10 per share
- Issue price: Rs 50 per share
- Minimum Shares: 1000 shares and in multiples of 1000 shares there-off
- Minimum amount: Rs 150,000
- Issue size: Rs 5.7 Crores
- Lead Managers: Pantomath Capital Advisors (P) Ltd
- Listing: BSE SME
- Download Mangalam Seeds Limited IPO Prospectus from SEBI Website at this link
Purpose of the IPO:
1. Funding working capital requirement
2. Funding issue expenses.
Company Financials (reinstated)
- Company generated revenue of Rs 671.8 Lakhs for the year ended Mar-12 and Rs 1703.41 Lakhs for the year ended Mar-15.
- Company posted a Profit of Rs 5.48 Lakhs for the year ended Mar-12 and a Profit of Rs 120.25 Lakhs for the year ended Mar-2015.
- Its EPS for FY 2015 is Rs 4.79 and 3 years weighted Avg EPS is Rs 2.63.
Reasons to invest Mangalam Seeds IPO
- Good revenue growth in last 3 years. Its revenues increased by 2.5 times in last 3 years.
Reasons not to invest in an Mangalam Seeds IPO
- Thin Margins of < 1% in last 3 years ending FY2013-14. However in FY2015 it generated 7.1%. We need to monitor for one more year to check whether such margins are sustainable.
- Business requires high inventory level. Production cycle is also long. Inaccurate forecast of such inventory would increase cost and impacts profitability.
- Company is highly dependent on the success of the R&D and failure to develop new and improved products could affect business.
- Company has registered the seed varieties produced by them.
- Income tax department has challenged certain income tax exemptions claimed by the company.
- Seeds business is highly seasonal and it would impact its operational results.
- Company and some of its Directors and promoters are involvd in certain legal proceedings which if determined adversely, may advertisely affect its business and financial condition.
- There are discrepancies in the financial statements prepared in earlier financial years.
- Minimum investment required is Rs 1.5 Lakhs to subscribe to this IPO.
- Other risk factors (Internal and external) can be viewed in prospectus Page no. 16 onwards.
Recommendation / Investment strategy
- At an issue price of Rs 50 and EPS for FY 2014-15 of Rs 4.79, P/E Ratio works out to be 10.43. At an issue price of Rs 50 and weighted average EPS of Rs 2.63, P/E Ratio works out to be 19. Means, the company is asking issue price in between 10.43 and 19, P/E Ratio.
- Its competitors Camson Bio Technology share price is trading at a P/E Ratio of 88 (Highest) and Kaveri Seeds Ltd at P/E Ratio of 18.39 (Lowest) and industry average is 42. Hence, the issue price of Rs 50 per share is reasonably priced.
- Mangalam Seeds Limited revenues are showing good improvement. It generated thin profits for 3 years which can be vanished due to increase in R&D expenses or increase in raw material. However FY2015 is turn-around as it improved profits to 7%. While we need wait to see its consistent performance on profits, high risk investors can subscribe to this IPO considering all the points indicated above.
Disclaimer: I do not have an 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.
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Mangalam Seeds IPO – Should you invest
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