Pecos Hotels and Pubs SME IPO – Should you Invest?
Pecos Hotels and Pubs IPO will open for subscription tomorrow, i.e. 23rd July 2015. Pecos Hotels and Pubs Limited are mainly engaged in the business of running of hotels and pubs in Bangalore. Revenues of this company are consistently growing in last 5 years. This SME company is generating thin margins. What the positive factors of Pecos Hotels and Pubs IPO? What are the negative factors to be considered before investing in Pecos Hotels and Pubs Limited SME IPO?
About Pecos Hotels and Pubs Limited
Pecos Hotels and Pubs Limited company is into the business of running of hotels and pubs in Bangalore, with 4 Pubs providing 70s, 80s and 90s retro rock music since last 10 years. It claims that its focus is to bring alive the greatest of legends in the interiors, the lighting, the paintings, pictures, posters and the sounds.
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Issue details of Pecos Hotels and Pubs IPO
- IPO opens: 23-Jul-2015
- IPO closes: 28-Jul-2015
- Face Value: Rs 10 per share
- Issue price: Rs 50 per share
- Minimum amount: Would be updated as soon as I get info
- Issue size: Rs 229.5 Lakhs
- Lead Managers: Sarthi Capital Advisors Pvt Ltd
- Listing: BSE SME
- Download Pecos Hotels and Pubs Limited IPO Prospectus from SEBI Website here
Purpose of the IPO:
1. Development of New Pub
2. Upgradation, Repair and Maintenance of our existing pubs.
3. General Corporate Purposes.
Company Financials (reinstated)
- Company generated revenue of Rs 131.44 Lakh for the year ended Mar-10 and Rs 292.14 Lakhs for the year ended Mar-14. It has generated revenue of Rs 249.96 Lakhs for 10 months ended Jan-2015.
- Company posted a Profit of Rs 1.75 Lakhs for the year ended Mar-10 and a Profit of Rs 1.20 Lakhs for the year ended Mar-2014. It has generated profit of Rs 10.12 Lakhs for 10 months ended Jan-2015
- Its EPS for FY 2013-14 is Rs 0.52 and 3 years weighted Avg EPS is Rs 2.54.
Reasons to invest Pecos Hotels and Pubs IPO
- Consistent revenue growth in last 5 years.
Reasons not to invest in Pecos Hotels and Pubs IPO
- It generated thin margins 0.4% for FY 2013-14 and 4% for 10 months ended Jan-15. Such thin margins would not provide any dividends to share holders in long run.
- Company and Promoter Group entities are involved in certain regulatory proceeding(s). Any adverse decision in such proceeding(s) may render us/them liable to liabilities/penalties and may adversely affect its business and results of operations.
- Past Penalty on Promoter & one of the Promoter Group Company for non-compliance of the Companies Act, 1956.
- Company registered office from which they operate is not owned by the Company.
- Some of its Group Entities have incurred losses in financial year ended 2013-14, 2012-13 and 2011-12.
- Delay or default in filing of certain forms under the Companies Act with RoC company has made default in filing of Form PAS-4 with Registrar of Companies within the prescribed time limit.
- Promoters and members of the Promoter Group will continue jointly to retain majority control over the Company after the Issue, which will allow them to determine the outcome of matters submitted to shareholders for approval
- The company may be unable to select and finalize suitable locations for its new pubs, which would have a material adverse effect on its growth prospects.
- Minimum investment required is Rs 1.40 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 0.52, P/E Ratio works out to be 96.15. At an issue price of Rs 50 and weighted average EPS of Rs 2.54, P/E Ratio works out to be 19.68. Since last year can be taken as basis as there is fall in EPS, you can assume that it is asking for issue price of P/E ratio 96.
- There are no listed companies in similar business. However, asking price at P/E ratio of 96 for such company generating thin margins could be high.
- Pecos Hotels and Pubs Limited revenues are growing consistently. However, thin margins, high issue price and other risk factors indicated above are some of the negative factors. One should wait and watch for improvement in profits and then consider investing in such companies. As of now, I am neutral on this company IPO.
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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Pecos Hotels and Pubs SME IPO
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