Spending Rs 60 lakh to raise Rs 2.6 cr!

Considering the company’s age (10 years) and promoters’ experience (19 years), a premium of Rs 2 may be too small. But, making a tiny IPO and spending nearly a fourth on issue-related expenses questions the motive.

OFFER AT A GLANCE
Name	Samruddhi Realty Ltd
Offer Amount	Rs 2.6 cr
Offer Quantity	21.7 lakh shares of Rs 10 each
Offer on Total Equity	31%
Free Float	31%
Post-issue Promo stake	69%
Post-IPO Capital	Rs 7 cr
Offer Price	Rs 12
Application Quantity	10,000 & Multiples of 10,000
Offer Opens	March 28, 2013
Offer Closes	April 3, 2013
Listing	SME Platform of BSE
Rating	Nil
Lead Manager	Hem Securities
Registrar	Sharex Dynamic

 

The Offer

Fresh issue of 21,70,000 equity shares of face value of  Rs 10 at a price of  Rs 12  aggregating to Rs 260.40 lakh. Of the issue, 1,10,000 shares (Rs 13.20 lakh) are reserved for the `Market Makers’. The public offer will constitute 31% of the post issue capital of the company. The issue is fully underwritten by the lead manager – Hem Securities who will also act as market maker.

 

Issue Objective

The main object of the issue is part repayment of term loan amounting to Rs 207 lakh taken from Karnataka Bank.

 

Background

Incorporated in 2003, Samruddhi Realty Ltd (SRL) has undertaken the execution of high value luxury apartments under the small size segment. The company claims to have completed its initial projects with assured quality standards and delivered them to the customers on schedule. In over 9 years of existence, SRL has executed projects at different locations in the Bangalore region. Most of the developments carried out by the company are on a joint development model with the landowners being given built up area. SRL has reportedly completed 4 projects with an area of approx. 1,25,000 Sq. ft. The company claims to have 3 ongoing projects with a saleable area of approx. 4,46,117 Sq. ft. and two upcoming projects with a  developable area of  4,75,000 Sq. Feet.

SRL is said to be a member of Confederation of Real Estate Developers’ Associations of India (CREDAI) which is a prominent body for private real estate developers in India. CREDAI represents over 6,000 developers through 18 member associations across the country. SRL is also a member with Indian Green Building Council (IGBC). As part of its growth plans, the company is contemplating taking up projects in other cities such as New Delhi, Chennai, Pune, Ahmedabad and Hyderabad.

The company’s promoters V. R. Manjunath (53 years), Hemang Rawal (42) and Ravindra Madhudi (41) are said to have been connected with real estate industry for over 18 years. The Samruddhi group indeed has nine more companies engaged in similar business. However, for the promoters’ acclaimed experience, the performance of the group companies is far from convincing.

 

Financial Track 

SRL has had a fluctuating past. The company’s top line which was at Rs 9 cr in fiscal 2008 slumped to Rs 2.9 cr in fiscal 2010. The company’s net profit, which was at Rs 45 lakh in 2010, declined to Rs 29 lakh next year.  For the fiscal 2012 it posted revenue of Rs 12.56 cr and netted Rs 40 lakh which is too small to adequately service the post-issue capital of Rs 7 cr.

Though the company’s bottom line was in black in fiscals 2011 and 2012, net cash generated from operations were negative. The company’s Debt-Equity Ratio stood abnormally high at 4.3 times and 4.8 times as on September 30, 2012 and March 31, 2012 respectively. While the company’s cost of bank borrowing is reported as 14%, return on net worth is only 12.4% in 2012. No wonder, it has not paid dividends till date. Non-dividend carrying share is being offer to public at a premium though the promoters were issued at par in January this year.

 

Investment Bankers’ Track

The Bangalore-registered SRL’s IPO is managed by Mumbai-based Hem Securities. The last IPO handled by Hem, Tijaria Polypipes, is quoting at less than 10% its offer price! The previous one, Shekhawati Poy-Yarn, after languishing below the offer price in 2011, is currently commanding a premium. In its previous `avataar’ as Hem Financial, the investment banker brought out five IPOs during the unprecedented primary market boom between 1995 and 1996. Except just one, none of those scrips are now traceable on the trading screen!

Status of Hem-managed IPOs
Issuer	IPO	IPO	Current	Gain
	Date	Price	Price	%
Tijaria Polypies	27-Sep-11	60.00	5.60	-90.7
Shekhawati Poly	27-Dec-10	30.00	42.60	42.0
H N Finance	04-Dec-95	15.00	NT
Indergiri Finance	08-Jan-96	10.00	7.02	-29.8
RS Industries	22-Feb-96	20.00	NT
Tridev Finance	02-Dec-96	10.00	NT
BFL Developers	03-Dec-96	10.00	NT