India Finsec Ltd IPO – Avoid
Delhi based India Finsec Ltd has come out with public issue of 60 lakh shares @ ₹ 10 each totaling to ₹ 6 Crores. If you are tempting to subscribe to this IPO by looking at the profitability for the 9 months ended Dec-2012 of ₹ 86.90 lakhs (25.77% profitability), then wait for a minute and have a complete analysis before you invest. Should you subscribe to India Finsec IPO?
About India Finsec Ltd IPO
India Finsec Ltd is incorporated in 1994. It is NBFC Company engaged in the business of Financing, Inter Corporate Deposits, advancing Short term loans, Long term loans, credits to individuals & companies etc. Company also deals in stocks, shares and securities. As on March 31, 2012 the loan book size of the Company is ₹. 36.68 cr. None of the Assets of the Company are NPA.
Issue details:
- IPO opens: 24-May-2013
- IPO closes: 28-May-2013
- Face value: ₹ 10
- Issue price: ₹ 10
- Minimum bid: 10,000 shares and in multiples of 10,000 shares thereon
- Minimum investment: ₹ 100,000
- Lead managers: Aryman Financial Services Ltd
- Registrar: Skyline Financial Services Ltd
- Listing: BSE SME
- Prospectus: http://www.bseindia.com/downloads/ipo/2013521164325Prospectus.pdf
Purpose of the IPO: The funds would be used for the following purposes.
- Purchase and set up of Office Space for Registered Office;
- To augment our capital base and provide for our fund requirements for increasing our operational scale with respect to our NBFC activities and
- Issue related Expenses
- To receive the benefits of listing on the SME Platform of BSE Ltd
Company financials
Company revenues have grown from ₹ 4.35 Lakhs in FY2008 to ₹ 496.96 Lakhs in FY2012. For the 9 months ended Dec-2012, company reported revenues of ₹ 337.27 lakhs.
Coming to profits, company has posted 1.61% margins in FY2008 and 1.47% in FY2012. For the nine months ended Dec-12, the profits are 25.77%.
Reasons to invest
Good revenue growth from ₹ 4 lakhs from FY2008 to ₹ 496.96 lakhs in FY2012.
Reasons not to invest
- Though the revenues have been growing, if we annualize the revenues of 9 months ending Dec-12, the revenues expected for FY2013 are ₹ 450 Crores. Means there would be a drop in year on year revenue by 10% comparing to FY2012.
- The margins are very low and below 1.5% per annum in FY2012. In 2013, the profit margin is suddenly increased to 25.77%. This is due to the fact about “Changes in inventories” for ₹ 1.65 Crores. If we exclude such re-valuation/re-validation of inventories, there would be a loss of ₹ 78 lakhs instead of ₹ 87 lakhs profit.
- Company is raising ₹ 6 Crores mainly for purchasing or set-up of registered office and it may not add much benefit to the company business.
Recommendation / Investment strategy: Average EPS for the last 3 years is ₹ 0.31. Revenues for the 9 months ended Dec-2012 are ₹ 337 lakhs and profits are ₹ 126 lakhs. It has issued the shares for ₹ 200 each during 2007-2011 and issued bonus shares in May-2012. Due to this the NAV is inflated and shows ₹ 22.07 as on 31-Dec-12. If the capital is increased from ₹ 13.44 Crores to ₹ 19.44 Crores, the NAV would reduce to ₹ 17.82. The P/E ratio would work out to 32.26 on previous equity. The peer group companies P/E ratio is ranging between 3.70 and 50, hence the issue price is not high. However the minimum investment required is ₹ 1 lakh. The SME IPO’s listed are trading with very low volume and the liquidity has been a problem. Considering the negative points, my suggestion is to avoid such IPO.
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Suresh
India Finsec Ltd IPO – Avoid
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