Vishwaraj Sugar Industries IPO – Should you Avoid?

Vishwaraj Sugar Industries IPO ReviewVishwaraj Sugar Industries IPO Review

Bangalore based Vishwaraj Sugar Industries IPO would open for subscription on 30th September, 2019. Vishwaraj Sugar Industries Limited is engaged in manufacturing of sugar and other allied products in India. This company had planned for IPO almost 6 years back and did not come up for unknown reasons. The loss making company is issuing the shares with IPO price between Rs 55-60 per share. Should you invest in the Vishwaraj Sugar Industries Ltd IPO or avoid? In this article, we would do Vishwaraj IPO Review.

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About Vishwaraj Sugar Industries Limited

They are an integrated sugar and other allied products manufacturing company operating from Belgaum District in the State of Karnataka which is designated as one of the “High Recovery zones” for sugar production by the Government of India. They operate a single location sugar unit having licensed crushing capacity of 11,000 TCD. In addition to sugar, they also manufacture other allied products like Rectified Spirits, Extra-Neutral Spirits, Indian Made Liquor, Vinegar, Compost, Carbon dioxide, etc. and are further engaged in the generation of Potheyr for captive consumption as well as external sale. Its business can hence be broken up into five main segments namely Sugar, Co-Generation, Distillery, Indian Made Liquor and Vinegar.

Vishwaraj Sugar Industries IPO Issue details

Vishwaraj Sugar Industries IPO Schedule

Vishwaraj Sugar Industries IPO RHP Prospectus can be downloaded at this link

What are the Objects of the Vishwaraj Sugar Industries IPO?

Here are the objects of the IPO issue.

1) Offer for the sale (OFS) of equity shares of 7 Mn shares by the Selling Shareholders. The company will not receive any proceeds from the Offer and the entire proceeds from the Offer will go to the Selling Shareholders.

2)  Funding Working Capital Requirement.

3) General corporate purpose.

Who are the Company Promoters?

The promoters of the Company are Umesh Katti, Ramesh Katti, Nikhil Katti, Lava Katti, Kush Katti, Sheela Katti, Jayashree Katti and Sneha Nithin Dev.

How is the company doing in terms of Financial Performance (Reinstated)?

Here are the restated financials for the past 5 years.

1) Company revenues are at Rs 349.3 Crores for the year ended Mar-15 and Rs 307.8 Crores for the year ended Mar-19.

2) The company incurred a loss for Rs 0.5 Crores for the year ended Mar-15 and Rs 17.6 Crores for the year ended Mar-19.

3) Since it has incurred losses in previous years, its 3 years average NPS and FY2019 NPS are negative.

Vishwaraj Sugar Industries Limited IPO - Financials 2015-2019

What is the of Vishwaraj Sugar Industries Credit Rating?

The credit rating is not required for issue of equity shares, hence, they have not approached any credit rating agency for credit rating.

What is the Vishwaraj Sugar Industries IPO GMP now?

Currently Vishwaraj Sugar Industries IPO GMP data is not available.

What is the allocation portion in this IPO?

Here is how the allocation would be done

1) QIB (Incl Anchor investors) –Up to 10%

2) NIIs – up to 40%

3) Retail Investors – up to 50%

What are the key strengths of Vishwaraj Sugar Industries Limited?

Every investor should understand the company’s key strengths so that one can compare with its competitors to know how unique is such company in their business. Their investment decision would change based on these facts. Here are the key strengths of the company.

1) Experienced Promoters and strong Executive Team.

2) Wide range of products.

3) Integrated operations and economies of scale.

4) Strong Technological Capabilities.

5) The strategic location of Its manufacturing unit.

6) Cordial and strong relationships with sugar cane farmers.

7) Captive Potheyr plant and exportable capacity.

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What are the various strategies of Vishwaraj Sugar Industries Ltd?

Company strategies would help investors to know what company is intending to do in the future and whether these strategies would help in revenue or margin growth. Such information would help investors to decide whether to invest for short term, medium term or for the long term. Here are the company strategies.

1) Increasing operational efficiency.

2) Explore possibilities of geographical expansion.

3) Addition of new IML products.

4) Augment Its fund based capacities in order to scale up business operations.

Positive Factors to invest Vishwaraj Sugar Industries IPO

There are no major positive factors to invest in this IPO.

Major Risk Factors in this Vishwaraj IPO

These risk factors can impact company revenue and margins which would affect its share price. Investors should go through and understand these risk factors before investing.

1) There is no revenue growth in the last 5 years.

2) The company has incurred losses for 3 years out of the last 5 financial years. Investors would not get anything in the form of dividend by investing in loss making companies.

3) The sugar industry is not that favorable in the last few years.

4) This is small size IPO and 70% is Offer for sale. Company would not get any major benefit from this IPO.

5) This company had planned to come up with an IPO in Feb/Mar-2013 and looks that got dropped for unknown reasons. 

This company has filed a draft prospectus on Dec 2017 and it took more than 22 months to come with IPO now as SEBI took time to clear all open issues.

Other risk Factors to consider before investing in Vishwaraj Sugar IPO

Other risk or negative factors that are indicated in the DRP Prospectus.

1) They had in the past, made certain issuances and allotments of Its equity shares which may not be in compliance with the applicable provisions and rules of the Companies Act, 1956.

2) Its Promoters & Promoter Group is offering their shares or part thereof in this Offer under the Offer Sale which constitutes a significant percentage of the total Offer for Sale portion. Further, the allocation to QIBs in this Offer is only 10% of the Offer size.

3) Its Company, Promoters and Directors are parties to certain legal proceedings. Any adverse decision in such proceedings may have a material adverse effect on Its, results of operations and financial condition.

4) Its business is subject to seasonal variations that could result in fluctuations in company results of operations.

5) Its business is working capital intensive. If they are unable to generate sufficient cash flows to allow us to make required payments on its debt or fund working capital requirements, there may be an adverse effect on its results of operations.

6) They have significant amounts of outstanding payment to Sugarcane growers / farmers each year

7) Sugarcane is the principal raw material used for the production of sugar. It depends on the availability of sugarcane and any shortage of sugarcane may adversely affect Its and results of operations.

8) For complete internal and external risk factors, you can refer the IPO RHP of the company.

Vishwaraj Sugar Industries IPO Schedule

Here are the Vishwaraj Sugar Industries IPO dates and schedule.

Offer Opens – 30-September-2019

Offer Closes – 4-October-2019

Finalization of Basis of Allotment – 11-October-2019

Unblocking of ABSA and Initiation of Refunds – 14-October-2019

Credit of shares to Demat Accounts – 15-October-2019

IPO Shares Listing Date – 16-October-2019

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Is the Vishwaraj Sugar Industries IPO Price justified?

The company has incurred losses in the last 2 years. Hence 3 years average EPS and last year FY2019 EPS was negative. Its competitors like Bannari Amman Sugars is trading at P/E of 20x (Highest) and Dalmia Bharat Sugar at P/E of 3.6x (Lowest) and industry average P/E is 6x. This company is asking issue price of Rs 55-60 per share. Its NAV as on 31st March, 2019 is Rs 61. Hence we cannot compare with its competitors to see whether its issue price is under priced or overpriced.

Vishwaraj Sugar Industries IPO – Should you Invest?

Company revenues have not grown in the last 5 years. It has incurred losses in 3 out of 5 years. Its plan of coming to IPO 6 years back did not get materialized for unknown reasons. Its issue price cannot be determined whether it is under priced or overpriced. As an investor, what do you do then? Think… Think… Think… I don’t need to give conclusion to you. Our readers have become clever these days.

Disclaimer: The information in this article is for educational purpose only. This is not a recommendation to invest or NOT to invest in this IPO. Please consult your investment advisor before you invest in such high risk IPOs.

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Suresh KP

Vishwaraj Sugar Industries IPO Review

Suresh KP


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