Samruddhi Realty IPO
Bangalore based, Samruddhi Realty Ltd is coming up for public issue for Rs 2.6 Crores at a fixed price Rs 12. Should we subscribe to Samruddhi Realty IPO?
About Samruddhi Realty Ltd
Samruddhi Realty is incorporated in 2003 and is the flagship company of Samruddhi Group. It is engaged in the business of real estate development. Company is headquartered in Bangalore and core area of operations is residential projects.
Issue details:
- IPO opens: 28-Mar-2013
- IPO closes: 03-Apr-2013
- Issue Price: Rs 12 per share
- Face value: Rs 10
- Minimum bid: 10,000 shares and in multiples of 10,000 shares thereon.
- Minimum investment: Rs 120,000
- Leader managers: Hem Securities Ltd
- Registrar: Sharex Dynamic (India) Pvt. Ltd
- Listing: BSE SME
- Prospectus: http://www.bseindia.com//downloads/ipo/20133415491Draft%20Prospectus%20-%20Samruddhi%20Realty%20Limited.pdf
Purpose of the IPO: The funds would be used for the following purposes.
To reduce overall indebtedness of the Company by partial repayment of the outstanding long term loan from Karnataka Bank;
To Meet the Issue Expenses and
To receive the benefits from listing of Equity Shares on the SME Platform of BSE.
Company financials
Positives:
Company has posted strong revenue growth in the last 3 years. The revenues have increased from Rs 5.65 Crores to Rs 12.56 Crores in FY2011-12 showing a healthy revenue growth of 122%.
Negatives:
- Company revenues have dipped in FY2008-09 by 62% compared to FY2007-08. Company revenues have dipped in FY2009-10 by 16% compared to FY2008-09.
- Company revenues have grown only 38% in the last 5 financial years which gives an annualised growth of < 8%
- Company has posted a net loss of Rs 41.45 lakhs in FY 2008-09.
- Samruddhi Realty share price is Rs 12 per share. It is trading at 2.72x on an annualized EPS of Rs 4.41. The company has a huge debt of Rs 1876.07 lakhs towards secured loans and Rs 373 lakhs towards unsecured loans. In this public issue, it is raising a capital of Rs 260 Lakhs only inspite of having such heavy debts. Due to heavy debts it needs to incur heavy finance costs year on year.
- The minimum investment is Rs 120,000. Small investors cannot afford to invest such big amount for a SME IPO.
- Majority of the projects are under joint development model. With such a model in place, the margins would be very low.
Recommendation / Investment strategy: Thought Samruddhi Realty has posted good revenue performance in the last 3 years, considering the high financial costs, inconsistent revenue growth in last 5 years and its low margins are not providing confidence about the company. Hence, we request that investors should stay away from such IPO.
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Suresh
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