Five Core Electronics SME IPO – Should you invest?
Kolkata based Five Core Electronics IPO (NSE Emerge) would open for subscription on 9th May, 2018. Five Core Electronics Limited has grown into one of the world’s leading suppliers of commercial PA system products. Its revenues grew at 19% CAGR in the last 5 years. This IPO would get listed on NSE Emerge. Since IPO Price is high and catching investor attention, we are covering as part of our IPO analysis. What are positive factors in IPO of Five Core Electronics Limited? What are the hidden factors in 5 (Five) Core Electronics IPO? Should you invest in Five Core Electronics IPO? Let me provide some insights about this IPO and do the review.
About Five Core Electronics Ltd
Established in 2002 by principals with a background in electronics, 5CORE has grown into one of the world’s leading suppliers of commercial PA system products. Company is committed to develop creative, reliable and value-oriented PA systems and distributing it worldwide with an uncompromising level of service and support. They facilitate public address system to commercial segment which helps in reinforcing sound. These user-friendly systems are easy to install, operate and maintain, and are offered with comprehensive warranties and after sale services. 5CORE products have been developed to meet countless requirements and are suitable for small, medium as theyll as large venues including factories, schools, religious places, banks, restaurants, office buildings, workshops, shopping malls, meeting halls and boardrooms, etc. Based in New Delhi its company continues to prosper fulfilling the requirements of customers from many different market sectors and backgrounds.
Five Core Electronics IPO Issue details
IPO opening date: 9-May-2018
IPO closure date: 11-May-2018
Face Value: Rs 10 per share
Price Band: Rs 140
Issue size: Rs 46.6 Crores
IPO Lot size: 1000 shares and 1000 shares there-off
Minimum investment: Rs 140,000 on higher price band
Leading Managers: Sarathi Capital Advisors Pvt Ltd
Listing: NSE Emerge
Objects of the Five Core Electronics Limited IPO issue
The Objects of the issue are
1) To meet the working capital requirements of the Company.
2) To meet the working capital requirements of the Subsidiary, 5 Core Acoustics Private Limited.
3) General Corporate Purpose.
4) Repayment of Unsecured Loan of Promoters/Directors.
5) Issue Expenses.
Promoters of the company being Mr. Amarjit Singh Kalra and Ms. Surinder Kaur Kalra
Company Financials (reinstated-Standalone)
1) The company generated revenue of Rs 85.5 Crores for the year ended Mar-13 and Rs 170.6 Crores for the year ended Mar-17. Revenues for 9 months ended Dec-2017 was Rs 152.5 Crores.
2) The company posted a profit of Rs 0.74 Crores for the year ended Mar-13 and profit of Rs 1.48 Crores for the year ended Mar-17. Profits for 9 months ended Dec-17 was Rs 4.13 Crores.
3) Its FY17 EPS is Rs 2.7 and last 3 years average EPS is Rs 2.15. Its 9 months ended Dec-17 EPS is Rs 4.52.
What are the key strengths of Five Core Electronics Limited?
Here are the key strengths of the company.
1) Experienced promoters.
2) Product innovation and design capabilities.
3) Brand Value.
4) Strong and extensive distribution channels across 56 countries.
5) Quality Assurance.
6) Strong Customer Base.
7) Wide range of Products
Reasons to invest in Five Core Electronics IPO
Strong Revenue growth of 18% CAGR in the last 5 years
Risk Factors / Reasons not to invest in an Five Core Electronics IPO
1) Company earns thin margins of 0.6% to 0.9% in the last 5 years. However, for 9 months ended Dec-17, it earned 2.7% margins which raises concerns on sustainability about its profits.
2) Company had availed certain unsecured loans on long term basis which are being repaid out of IPO proceeds.
3) They sell its products under its brand name “5CORE” in India and globally. If they are unable to maintain quality, its brand building exercise may be adversely affected. Any deterioration in the reputation and market perception of its brand may have an adverse effect on its sales, profitability and the implementation of its growth strategy.
4) Any change in the technology may render its current technologies obsolete or require us to make substantial capital investment to cope with the market.
5) Its Group Companies/Entities are engaged in business activities similar to its own, which may cause a potential conflict of interest with them.
6) Its global sales expose us to numerous and sometimes conflicting legal and regulatory requirements, and violation of these regulations could harm its business.
7) They have acquired its subsidiary, 5 Core Acoustics Private Limited in April 2017 at a price of Rs. 45 per share, whereas the book value of its subsidiary was Rs.26.37 for the financial year ended March 31, 2017.
8) Its operations are significantly dependent on its ability to successfully identify customer requirement and preferences and gain customer acceptance for its products. If they fail to do so, its business may suffer.
9) The sale of counterfeit products may affect its reputation and profitability.
10) A significant disruption to its distribution network or any disruption of civil infrastructure, transport or logistic services, may create delays in deliveries of products distributed by them.
11) They currently avail benefits under certain export promotion schemes. Any discontinuance of such schemes by the Government may adversely affect profitability.
12) In case of its inability to obtain, renew or maintain the statutory and regulatory licenses, permits and approvals required to operate its business it may have a material adverse effect on its business
13) Company had negative cash flows from its operating, investing activities as theyll as financing activities in some of the previous year(s) as per the Restated Standalsone Financial Statements.
14) Its manufacturing units and R&D unit are not owned by them.
15) Other risk factors (Internal and external) can be viewed in the red hearing prospectus (RHP).
Recommendation / Investment strategy – Five Core Electronics IPO
1) On FY2017 standalone EPS of Rs 2.7 and on price band of Rs 140, P/E works out to be 52x. On last 3 years average standalone EPS of Rs 2.15, P/E works out to be 65x. Based on 9 months ended Dec-17 EPS of Rs 4.52, P/E works out to be 31x. There are no listed peers in similar business. However if we attribute 9 months EPS, the issue price is fully priced.
2) Company posted strong revenue growth of 18% CAGR in the last 5 years. Its margins are on lower side, however shown improvement for 9 months ended Dec-17. One need to wait for sustaining profits. Its issue price is fully priced. High Risk investors only can invest in this IPO for 3-4 years time frame. If you are moderate risk or low risk taker, ignore this IPO. Investors may or may not get listed gains.
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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Five Core Electronics IPO – Should you invest