Fundamentals justify price though negative operating cash flow is cause for worry.
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OFFER AT A GLANCE |
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Issuer Name |
ADCC Infocad Ltd |
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Offer Amount |
Rs 9.60 cr |
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Offer Quantity |
24 lakh shares of Rs 10 each |
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Offer on Total Equity |
26.5% |
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Post-issue Promoter-stake |
44.7% |
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Post-IPO Capital |
Rs 9.06 cr |
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Offer Price |
Rs 40 |
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Application Quantity |
3000 & Multiples of 3,000 |
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Offer Opens |
September 30, 2014 |
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Offer Closes |
October 8, 2014 |
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Listing |
SME Platform of BSE |
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Rating |
Nil |
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Lead Manager |
Hem Securities |
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Underwriter |
Hem Securities (100%) |
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Market Maker |
Hem Securities |
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Registrar |
Bigshare Services |
The Issue
The present offer is a fresh issue of 24 lakh shares of Rs 10 each at a fixed price of Rs 40 a piece aggregating to Rs 9.60 cr of which 1.2 lakh shares (Rs 48 lakh) will be reserved for the `Market Maker’. On the post-IPO equity of Rs 9.06 cr, the promoters will have a stake of 44.7%. Investors should apply for a minimum quantity of 3000 shares. Hem Securities is playing the combined role of lead manager, underwriter and market maker to the issue.
Issue Object
The company is primarily in the business of IT and IT enabled services such as Geospatial Services, Engineering design services, etc. The proceeds of the issue are to be utilized for the following: Purchase of New Technical Equipment Rs 56 lakh, Software Rs 42 lakh and Hardware Rs 18 lakh; Part-financing long term Working Capital Rs 700 lakh; International Marketing & Branding Expenses Rs 49 lakh; and General Corporate Purpose Rs 78 lakh. The fund requirement and deployment is based on internal management estimates and have not been appraised by any bank or financial institution.
Pedigree
The 16-year old ADCC Infocad Ltd (AIL) is part of the Nagpur-based Meghe Group which has varied interests in the fields of basic and professional education, banking, infrastructure, information technology, textile, power, media & entertainment. Originally incorporated as ADCC CAD Technology Private Ltd in May 1998 by Dhananjay Gawande and Shashikant Choudhari, AIL was taken over by the Meghe group in November 2002.
Under the new management, the company has reportedly expanded into the services sector providing turnkey solutions in the field of information technology and services, geospatial services, application development, energy solutions services, state & regional remote sensing applications and management of overall infrastructure. The company claims to have emerged as a global premier software solution provider through its alliance with world leaders like Autodesk Inc. USA – world‘s one of the largest design content company, Mathworks (Matlab), Dassault (Catia), Adobe, Digital Globe India & Africa (High Resolution Satellite Imageries), Integraph (Erdas Imaging & LPS Software and extensions) Siemens, Sanako (Language Lab), National Instruments (Experiential Engineering Laboratories), ESRI (GIS mapping solution, software , services).
Business Profile
AIL is a specialist in Geographic Information System (GIS) & Engineering Service solutions. The company reportedly services clients across a range of corporate and government segments helping improve their engineering efficiency, support global footprint and improve competitiveness. AIL equips engineers and professional with solutions that accelerate productivity, innovation, and discovery to meet not only grand but also daily engineering challenges in an increasingly complex world with its diversified services and by continual advancement in the infrastructure, technology and resources to various engineering industry verticals.
The company boasts of its state-of-art infrastructure at Nagpur with ultra modern IT Systems for data security and integrity. It has reportedly developed domain expertise in the fields of GIS/Remote Sensing, LiDAR (Light Detection and Ranging), Photogrammetry, Energy System and solutions, Engineering Design Services, Surveys and Customized Application Development. The company claims to possess requisite human resource in the form of 1000+ professionals that include Geologists, Engineers, Designers and 3D Modelers, based out of its GIS Centers at Nagpur, Mumbai, Lucknow and Hyderabad.
Financial Track
During the last five years AIL has reported steady growth. From Rs 21 cr in FY10, the company’s top line steadily increased to Rs 77 cr in FY14. Operating profit, which was at just Rs 2.5 cr in FY10, continuously grew year after year and stood at Rs 18.45 cr in FY14. Commendably, the operating margin has steadily improved from 10.7% in FY10 to 22.9% in FY14. At the end of fiscal 2014, earned surplus stood at Rs 15 cr. The company has been consistently paying dividend for the past five years. It has paid 15% dividend in last three years.
At the end of fiscal 2014, the company’s net worth amounted to Rs 21.70 cr against which its net block stood at Rs 23.74 cr. Perhaps, the only negative aspect that one could point out is the company’s operating cash flow. Last three years of operations have resulted in negative cash flow.
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ADCC INFOCAD FINANCIAL HIGHLIGHTS |
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(Rs.Cr) |
Post-IPO |
Mar-14 |
Mar-13 |
Mar-12 |
Mar-11 |
Mar-10 |
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NET REVENUE |
76.64 |
76.64 |
57.3 |
50.69 |
33.75 |
21.18 |
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OTHER INCOME |
0.92 |
0.92 |
0.51 |
0.38 |
0.17 |
0.2 |
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GROSS INCOME |
77.56 |
77.56 |
57.81 |
51.07 |
33.92 |
21.38 |
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OPERATING PROFIT |
18.45 |
18.45 |
13.5 |
11.16 |
5.51 |
2.47 |
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OPERATING MARGIN (%) |
22.9 |
22.9 |
22.7 |
21.3 |
15.8 |
10.7 |
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NET PROFIT |
6.98 |
6.98 |
5.16 |
4.95 |
2.56 |
0.67 |
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EQUITY |
9.06 |
6.66 |
3.33 |
3.33 |
3.33 |
3.33 |
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RESERVES |
22.24 |
15.04 |
12.56 |
7.99 |
3.62 |
1.55 |
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NET WORTH |
31.30 |
21.70 |
15.89 |
11.32 |
6.95 |
4.88 |
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NET BLOCK |
23.74 |
23.74 |
22.18 |
19.28 |
13.25 |
4.48 |
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EARNING PER SHARE (Rs) |
7.70 |
10.48 |
15.50 |
14.86 |
7.69 |
2.01 |
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BOOK VALUE (Rs) |
34.55 |
32.58 |
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PRICE-EARNINGS (x) |
5.2 |
3.8 |
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PRICE/BOOK VALUE (x) |
1.2 |
1.2 |
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PRICE/REVENUE (x) |
0.5 |
0.3 |
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PRICE/NETBLOCK (x) |
1.5 |
1.5 |
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Dividend (%) |
15.0 |
15.0 |
15 |
15 |
12.5 |
10 |
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Yield (%) |
3.75 |
3.75 |
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Valuation
Whereas the average cost of holding of the promoters works out to Rs 5 or less, ADCC Infocad is asking Rs 40 for its share. The company’s last reported profit (Rs 6.98 cr) yields an EPS of Rs 7.70 on the post IPO capital of Rs 9.06 cr. The IPO price discounts the earnings only 5.2 times which is attractively low. Also, the company’s existing dividend base gives a yield