Prolife Industries SME IPO – What are the positive factors?
Gujarat based, Prolife Industries IPO would open for subscription on 27th December, 2016. Prolife Industries Ltd is engaged in the business of manufacturing special and exclusive range of intermediates for dyes etc.,. The company revenues grown by 17% CAGR in last 5 years. Its profits increased from 1.4% to 2.6% in last 5 years. It is getting listed on NSE Emerge. What are the positive factors in Prolife Industries IPO? What are the hidden factors about this IPO? Should you invest in this Prolife Industries SME IPO?
I have stopped reviewing SME IPO’s in the last few months. However due to large demand from readers, I have restarted SME IPO Reviews again. These are high risk investments, hence should be invested with due care.
About Prolife Industries Limited
Company is engaged in the business of manufacturing special and exclusive range of intermediates for dyes, pigments, pharmaceuticals, agrochemicals and others. Company has established even its own Research & Development Department within few years of incorporation of the company. It has already succeeded in developing very high quality Specialty Chemicals as result of thorough knowledge and R & D efforts of the Chairman and Managing Director of the company who has sound knowledge as well as vast experience of two decades in the chemical industry. The company has established its presence in domestic as well export market and are regularly catering to the needs of their customers in many countries including U.S.A, Spain, Switzerland, Germany, France, Taiwan, Japan, Germany, Brazil etc.
Issue details of Prolife Industries IPO
IPO opens: 27-Dec-2016
IPO closes: 30-Dec-2016
Face Value: Rs 10 per share
Issue price: Rs 38 per share
Issue size: Rs 4.21 Crores
Market lot: 3,000 shares and in multiples of 3,000 shares therein
Minimum investment: Rs 114,000
Lead Managers: Swastika Investmart
Listing: NSE Emerge Platform
Purpose of the IPO
1. Expansion of our existing manufacturing operations;
2. General Corporate Purpose;
3. Meeting Public Issue Expenses
Company Financials (reinstated-standalone)
Company generated revenue of Rs 1229.6 Lakhs for the year ended Mar-12 and Rs 2,283.2 Lakhs for the year ended Mar-16. For 3 months ended Jun-16, it generated revenue of Rs 419.1 Lakhs.
Company posted a profit of Rs 17.4 Lakhs for the year ended Mar-12 and profit of Rs 59.1 Lakhs for the year ended Mar-2016. For 3 months ended Jun-16, it generated a profit of Rs 16.8 Lakhs.
Its restated Earnings Per Share (EPS) for FY 2016 is Rs 3.96 and last 3 years average EPS Rs 3.13.
Reasons to invest Prolife Industries IPO
Revenues grown from Rs 1229.6 Lakhs for FY12 to Rs 2,283 Lakhs for FY16 indicating a CAGR of 17%. One should invest in companies that are growing consistently.
Good improvement in margins in last 5 years . It posted 1.4% margins for FY12 and 2.6% for FY16. It generated 4% margins for 3 months ended Jun-16.
Reasons not to invest in a Prolife Industries IPO
Out of total cost of Plant & Machinery worth Rs 276.99 lakhs, they have yet to place and order of approx of Rs 213.37 Lakhs which constitutes around 77.03% of the total cost of plant & machinery.
Business is substantially dependent on sales income from group company.
The loss of income from group company may have a material and adverse effect on business and results of operations.
Registered office premise and factory premises are on a leasehold/license basis and any termination of such lease/license and/or non-renewal could adversely affect operations.
Company and Group Company is involved in certain legal proceedings, which if determined against it, could adversely impact financial conditions.
Business requires us to obtain and renew certain registrations, licenses and permits from government and regulatory authorities and the failure to obtain and renew them in a timely manner may adversely affect business operations.
SEBI has filed prosecution against Tripex Overseas Limited & Others – Mr. Maninder Singh Jolly, promoter-Director of Company.
Minimum investment of Rs 1.2 Lakhs in this IPO makes it unattractive.
SME IPO’s are trading in low quantity and quick liquidity could be an issue.
Other risk factors (Internal and external) can be viewed in the draft prospectus from Page no. 10 onwards.
Recommendation / Investment strategy
On the issue price of Rs 38 and on FY16 EPS of Rs 3.96, P/E ratio works out to be 9.6x. Similarly, on last 3 years EPS of 3.13, P/E Ratio works out to be 12.1x. Means company is asking issue price for
P/E ratio between 9.6x and 12.1x. Its competitors, Yash Chemex is trading at P/E ratio of 18.2x and Omkar Speciality Chemicals is at 14.4x. Hence, I feel the issue price of Rs 38 per share is reasonably priced.
Company revenue grew at 17% CAGR in last 5 years. It margins are improving year on year. Issue price also looks reasonable. Considering all these points, I would recommend investors to invest in this IPO. Once should consider the risk factors indicated above before investing in these SME IPO’s.
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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Prolife Industries SME IPO – What are the positive factors