Same merchant banker & issue date, similar project & offer amount, matching `credentials’ make VKJ Infra no better than Silverpoint!

Land filling is the latest glamour for BSE-SMEs who call themselves `infra-tech’! Mumbai-based investment banker, Inventure, is introducing on the same day (August 12, 2013) two such BSE-SMEs – one from Howrah (Silverpoint Infratech) and another from New Delhi (VKJ Developers). The same merchant banker also brought Bronze Infra-Tech from Kolkata in October 2012. Interestingly, all the three so called Infra companies are nothing but low-end ‘sub-contractors’ engaged in land leveling activities! While the regulators are into deep slumber, Inventure is having a gala time. This month alone it has lead-managed three IPOs whose credentials are highly questionable.

BSE’s lenient eligibility norms – Net tangible assets of Rs 1 cr; Net worth (excluding revaluation reserves) of Rs` 1 cr; Track record of distributable profits for two out of immediately preceding three financial years or net worth of at least Rs 3 cr; Post-issue paid up capital of Rs 1 cr; Trading in demat-securities and having own website – tempt many unscrupulous promoters to prefer the BSE-SME Platform. The fly-by-night operator-friendly investment bankers think that by hook or crook if one fulfills the eligibility norms of BSE, they can manage any IPO for a fee. But, what they do not realize is, they are killing the primary market driving away genuine investors.

OFFER AT A GLANCE
Name	VKJ Infradevelopers Ltd
Offer Amount	Rs 12.75 cr
Offer Quantity	51 lakh shares of Rs 10 each
Offer % on Total Equity	28.6
Post-issue Public Holding %	73.7
Equity Capital	Rs 17.85 cr
Offer Price	Rs 25
Application Quantity	6000 & Multiples of 6000
Offer Opens	August 12, 2013
Offer Closes	August 16, 2013
Listing	SME Platform of BSE
Lead Manager	Inventure Merchant Banker
Market Maker	Anuriti Multy Broking
Registrar	Sharepro Services

 

The Offer

VKJ Infra is making a fresh issue of 51 lakh shares of Rs 10 each at a price of Rs 25 a share aggregating to Rs 12.75 cr. Whereas the lead manager, Inventure Merchant Banker, has underwritten only 15% (Rs 1.92 cr), Delhi-based little known Anuriti Multy Broking and Narayan Securities have committed 40% (Rs 5.10 cr) and 45% (Rs 5.73 cr) respectively. Investors should apply for a minimum of 6000shares.

 

Issue Object

The `infra-developer’ does not have any concrete project on hand. It has earmarked Rs 10.65 cr for execution of `ongoing and forthcoming projects’ and other working capital requirements. Rs 1.5 cr is kept for general corporate purposes. As per the offer document, currently the company is doing land leveling work with ISP Construction and is now “looking for some land for future projects in Delhi, Noida, and NCR region”. Its working capital requirement includes funds for trading of construction material.

 

Changing Promoters

The company may be just three years old but, it has already had three set of promoters! According to the offer document, the company was initially promoted by Vivek Kumar Jain and Dinesh Pandey.  Nitin Kumar Jain and Sushil Kumar became the directors of the company in April and May 2010 respectively and acquired the shares from the original promoters in October 2011. Currently M/s Manoj Kumar, Arun Kumar Chalukya, Rajesh Kumar Chauhan and SSD Real Estate Developers Private Ltd are presented as promoters. The new promoters reportedly acquired the company on October 1, 2012.

 

Pathetic Financials

The company is having a disproportionately large capital of Rs 12.75 cr which is proposed to be increased to Rs 17.85 cr. Interestingly the company’s top line itself is yet to reach Rs 3 cr. Its net profit in first 11 months of fiscal 2013 was less than 4 lakh! The operating margin was as pathetic as 0.3%. While the company claims to require more than Rs 12 cr for its `infra-business’, it has parked Rs 8.5 cr in `non-current investments’ and Rs Rs 2.2 cr in long term loans and advances whose details are not disclosed in the offer document. Does the diversion of funds have anything to do with the three companies to whom VKJ Infra allotted 75 lakh shares at par (worth Rs 7.5 cr) barely two months ago?  

 

Absurd Valuation 

The company whose EPS was not even 10 paise in last fiscal on a then smaller equity of Rs 5.23 cr is dreaming a market cap of Rs 45 cr and is asking Rs 25 a share. They boast that the Net Asset Value of the share in March 2012 was Rs 268.54. But, this was before the bumper 25:1 bonus. Currently, the NAV is less than Rs 10.50.  When most of the infra stocks are going at heavy discounts to their NAVs who will give premium for VKJ Infra which has no visible bottom line? Moreover, just two months ago, the company has issued 25 lakh shares each at par to Alps Motor Finance, Classic Global Finance & Capital and Achal Investments. It the shares were deemed worth only Rs 10 in June how it is priced at Rs 25 in August?  In fact, the average cost of acquisition for the promoters is less than a rupee.

 

Concerns

• The company has already shown its true colours by diverting considerable amount to investment activities. Hence, price manipulation cannot be ruled out.
• As significant portion of the public category is held at par, they may mar the scrip once the lock-in is relaxed after a year.
• Promoters’ credentials are far from convincing and their post-issue stake is as low as 26%
• In two years the company has had three auditors as the retiring auditors expressed their inability to continue!