Circular funding and unproductive investments mar prospects.

A 62% subsidiary is making an offer for sale of holding company’s shares. Another 83% subsidiary is holding a significant stake in the parent company. How the majority-owned subsidiaries were allowed to hold the shares of the holding company raises serious corporate governance issues.  

OFFER AT A GLANCE
Issuer Name	Vibrant Global Capital Ltd
Offer Amount	Rs 11.48 cr
Offer Quantity	Fresh issue of 30 lakh shares & offer for sale of 30.42 lakh shares of Rs 10 each
Offer on Total Equity	26.4%
Post-issue Promo stake	54.0%
Post-IPO Capital	Rs 22.91 cr
Offer Price	Rs 19
Application Quantity	6000 & Multiples of 6,000
Offer Opens	September 29, 2014
Offer Closes	October 7, 2014
Listing	SME Platform of BSE
Rating	Nil
Lead Manager	Hem Securities
Underwriter	Hem Securities (100%)
Market Maker	Hem Securities
Registrar	Bigshare Services

 

The Issue

The present issue is a fixed price IPO consisting of fresh issue of 30 lakh shares of Rs 10 each and offer for sale of 30.42 shares from the promoter group company at a price of Rs 19 a piece aggregating to Rs 11.48 cr. On the post-IPO equity of Rs 22.91 cr, the promoters will have a stake of 54%. Investors should apply for a minimum quantity of 6000 shares. Hem Securities is playing the combined role of lead manager, underwriter and market maker to the issue. 

 

Issue Object

While the object of the offer for sale is to allow Vibrant Global Trading Pvt Ltd to encash 15.28% (out of 15.30%) of the company’s pre-IPO equity (Rs 19.91 cr), the net proceeds of the fresh issue is to be used for increasing NBFC operations (Rs 3.06 cr), repayment of loans Rs 2.5 cr and issue expenses Rs 14 lakh.  

 

Genesis

Originally incorporated as Raisoni Finance Pvt Ltd, the Mumbai-based Vibrant Global Capital (VGCL) belongs to 1995 vintage. The name of the company was changed to Vibrant Capital & Finance in 1997. The name was further changed to Vibrant Global Capital in 2010. Pursuant to a scheme of amalgamation, ABM Securities Ltd, Prajit Agrobased Industries Ltd and Vega-Mart Ltd were merged with VGCL. In fact, more than 32.5% (Rs 6.48 cr) of the pre-issue equity was allotted to promoters in lieu of amalgamation. The company is registered with the RBI as a non-deposit accepting NBFC. VGCL is considered the flagship of Vibrant Global group controlled by Vinod Garg. The group has a dozen companies, most of them engaged in trading and finance related activities. 

 

Business

Though termed as a finance company, VGCL has so far focused on investments and trading in listed as well as unlisted securities and financial products. At the end of fiscal 2014, the aggregate value of unquoted investment of the company stood at Rs 19.41 cr and the market value of the quoted investment amounted to Rs 11.20 cr. The company also provides long term as well as short term loans and advances to parties including related entities. As on March 31, 2014, the aggregate value of loan and advances stood at Rs 26 cr.    

 

Financial Track

For the past couple of years, total funds employed by the company on a standalone basis amounted to more than Rs 63 cr but, the company’s performance was far from satisfactory. A close look at last five years’ performance of VGCL reveals that the company’s prospects are unpredictable. From Rs 6.39 cr in FY10, VGCL’s top line leapt to Rs 19.92 cr in FY11. Next year, operating revenue plunged to Rs 2.11 cr while other income surged to Rs 4.69 cr. In fiscal 2013, revenue stood at Rs 2.49 cr and other income slumped to Rs 1.43 cr. Last year, revenue contracted further to just Rs 60 lakhs and other income declined to Rs 1.29 cr. The company has reported losses for the last three years and its reserves are wiped out. Currently, it has accumulated a deficit of more than Rs 2 cr. In three of last four years, including FY14, the company’s operating cash flow has been negative.       

 

Valuation & Perception

The company’s standalone net worth per share is less than Rs 10 and the promoters’ average cost of holding too is around Rs 10. Yet, it is asking a price of Rs 19 per for a share which has borne no dividend for the past five years. The company has already locked-in more than Rs 35 cr in investments which has no justification. In fact, the company has written off more than Rs 13 cr towards diminution in the value of investments. Also a significant amount of long term advance is made to a related party whose identity is not revealed. Parking funds in unproductive assets like these is certainly not in the interest of the public shareholders.       

 

Lead Manager’s Track

VGCL’s IPO is managed by the Mumbai-based Hem Securities which is the most active SME issue manager in this month. In September alone, it has associated with four public issues. Since the advent of SME, Hem has handled nine issues of which five are listed. Incidentally, all the five are currently quoting not less than their offer prices. Nonetheless, Hem’s mainframe record is too pathetic to speak about. Both Tijaria Polypipes and Shekhawati Poly have inflicted heavy losses on investors.    

In its previous `avataar’ as Hem Financial the investment banker brought out six IPOs during the unprecedented primary market boom between 1995 and 1996. Except just one, none of those companies are now traceable!

HEM SECURITIES LEAD-MANAGED ISSUES
ISSUER NAME	IPO	EPS	IPO	MKT	GAIN
	DATE	Rs	PRICE		(%)
BANSAL ROOFING	26-Jun-14	NA	30	33.50	11.7
CAPTAIN POLY	26-Nov-13	3.86	30	57.00	90.0
R&B DENIMS	28-Mar-14	NA	10	11.65	16.5
SAMRUDDHI REALTY	28-Mar-13	4.17	12	44.50	270.8
TENTIWAL WIRE	11-Dec-13	1.46	13	13.00	0.0
TIJARIA POLYPIPES	27-Sep-11	NA	60	3.89	-93.5
SHEKHAWATI POLY	27-Dec-10	0.32	3	1.75	-41.7