Encash Entertainment IPO (SME) – Can we invest?
Encash Entertainment SME IPO opened subscription yesterday. Do you know that this loss making company is asking for issue price of Rs 40. Means it demands a premium of Rs 30 per share. This Encash Entertainment IPO has several negative factors. What should you do with this Encash Entertainment SME IPO? Can we invest in such IPO? What are the risk factors to be considered before even thinking of investing in Encash Entertainment Limited IPO?
About Encash Entertainment Limited
Encash Entertainment Limited is engaged in the business of production of films, corporate films, feature films and have plans of coming up with serials on television. They are outsourcing the processing services like content development, multi-media, editing and sound recording from specialized professionals in the media fields, based in Kolkata. Further, they are also engaged in the business of fashion designing, wherein they design niche segment of dress materials, suits etc and supply them to retailers.
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Issue details of Encash Entertainment IPO
- IPO opens: 9-Sep-2014
- IPO closes: 15-Sep-2014
- Face Value: Rs 10 per share
- Issue price: Rs 40 per share
- Minimum shares to be applied: 3,000 and in multiples of 3,000
- Minimum investment: Rs 120,000
- No of shares: 10.98L shares
- Issue size: Rs 4.39 Crores
- Lead Managers: Guiness Corporate Advisors (P) Limited
- Listing: BSE SME platform
- Download Encash Entertainment IPO Prospectus here
Purpose of the IPO: The funds would be used for the following purposes.
- To acquire and produce Indian films, including regional language films
- Strengthening Distribution operations
- Brand Building
- To meet the expenses of the Issue
- The company generated revenue of Rs 80.76 Lakhs for the year ended Mar-12 and Rs 210.74 Lakhs for the year ended Mar-14. This company is generating revenues in the last 3 years only.
- Company posted a profit of Rs 0.11 Lakhs (Yes, you heard right, it is just Rs 11,000) for the year ended Mar-12 and a LOSS of Rs 11.23 Lakhs for the year ended Mar-2014.
Reasons to invest Encash Entertainment IPO
- Showing good revenue growth in the last 3 years.
Reasons not to invest in an Encash Entertainment IPO
- Filed a civil suit in Hon‟ble High Court at Kolkata, for protection of copyright in respect of the Bengali feature film “Ichhe, which, if determined adversely, could affect their business and financial operations.
- This Company has limited operating history in the business of film production & distribution sector and therefore investors may not be able to assess its company‟s prospects based on past results.
- They are dependent on the management team for success whose loss could seriously impair the ability to continue to manage and expand business efficiently.
- In the 12 months prior to the date of filing the Prospectus, the Company had issued Equity Shares at a price, which is lower than the Issue Price.
- This company has started generating revenues from FY 2012 onwards, however, have incurred losses in previous financial years FY10, FY11 and FY14.
- Group Companies posted negative profits in last three (3) financial years.
- It has negative cash flows in the previous years. This indicates that it need to borrow loans for high rate of interest and has difficulty in managing working capital requirements. This would affect the profits of the company.
- Business depend on their relationships with creative talent and other industry participants to exploit their film content.
- 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.
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Recommendation / Investment strategy
- P/E Ratio cannot be computed as the company incurred loss and has a negative EPS of Rs 0.70 for FY 2014. In the last 3 years too, EPS is negative Rs 0.32. Competitors shares are trading at a PE ratio of 51.3 and 5.10. Company is asking for a premium of Rs 30 per share and issue price of Rs 40 though it incurred a loss in the last year.
- Encash Entertainment IPO has several negative factors. Company started earning revenues in the last 3 years only. Company has incurred thin margins of Rs 11,000 in FY 13 and loss of Rs 11.23 Lakhs in FY 2014. I do not know how SEBI is allowing such companies to issue IPO for the general public. Investors should just avoid such IPO’s and should be very cautious about such companies.
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Encash Entertainment IPO (SME) -Should you subscribe
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.
I have found your analysis of investing in an IPO of a Company to be quite useful.
Thanks for posting this blog on this new IPO. I was trying to invest a good IPO. I was not luckly to get the Wonderla shares during the IPO. Please keep us posted about the new IPO’s.
Also, is it a very good time to invest? As there are lot of speculation that markets are expected to double its points in the next 2-3 years?
Appreciate all your blogs and hard work.