What can investors expect from a company which has not even remitted statutory dues like Service Tax, Professional Tax and Income Tax for years?

OFFER AT A GLANCE
Name	Ace Tours Worldwide Ltd
Public Offer	Fresh issue of 50 lakh equity shares
Offer Price	Rs 16
Offer Amount	Rs 8 cr
IPO% on Total Equity	39.5%
Post-IPO Free Float	54.3%
Application Quantity	8000 & Multiples of 8000
Bid/Offer Opens	September 9, 2013
Bid/Offer Closes	September 12, 2013
Listing	SME Platform of BSE
IPO Grading	Nil
Lead Manager	Corporate Strategic Allianz
Market Maker	Sunflower Broking
Registrars	Satellite Corporate Services

 

Public Offer

The Surat-registered Ace Tours Worldwide Ltd (ATWL) is going public with a fresh equity issue of 50 lakh shares of Rs 10 each at a fixed price of Rs 16 a piece aggregating to Rs 8 cr. The public offer works out to about 40% of the company’s post-IPO equity (Rs 12.67 cr), post-issue free-float being 54.3%. Of the public offer, 2.8 lakh shares are reserved for a little known `market maker’, Sunflower Broking. Corporate Strategic Allianz, who is lead-managing the offer, has underwritten as much as 94.4% (Rs 7.55 cr) while the market maker has committed the balance 5.6% (Rs 44.80 lakh). Applicants to this issue should apply for a minimum of 8,000 shares (Rs 1.28 lakh). ATWL will be the thirty-third IPO to be listed on the SME platform of BSE.

 

Issue Objective

As per the offer document, the objects of ATWL IPO include creating a public trading platform for the equity shares by listing them on BSE-SME. The company claims that the listing of its shares would enhance the company’s visibility and brand name which would enable the company to avail growth opportunities. Nevertheless, of the issue proceeds, only Rs 1.6 cr is earmarked for brand building while Rs 6 cr (75%) is proposed to be used for working capital. If the agreement between ATWL and media conglomerate Bennett, Coleman & Co. Ltd (BCCL) is anything to go by, the present issue is more for offering an exit route to BCCL than anything else.

It is worth noting that ATWL had allotted Rs 4 cr worth of convertible debenture in January 2008 which was to be converted in September 2009. However due to poor market sentiment, the company could not convert the debenture into shares on the original terms.  Consequently, in February 2011, they modified the original agreement whereby Rs 2.88 cr was redeemed in cash and the balance Rs 1.12 cr was converted into 5.2 lakh shares. As per the agreement, the company had to list the shares through an IPO at a price not less than BCCL’s cost of Rs 15.92.   

 

Unusual Move

ATWL had earlier filed its draft offer document with SEBI in March 2012. However, in November 2012 the company decided to withdraw the IPO. This year, it decided to float the IPO through the BSE-SME Platform. The prospectus was signed on August 14, 2013, and the issue date was also fixed at August 26, 2013. But, reasons best known only to the company, the issue date has now been changed to September 9, 2013, which is a bank/market holiday in most places!

 

Background

Originally formed as a partnership firm by the Surat-based Choksi family in the name of Ace Tours & Information Centre, ATWL reportedly commenced travel and leisure services business in 1996. The partnership firm was reconstituted twice and the name was changed to Ace Tours Worldwide Private Ltd in 2007. ATWL was converted into a public company in September 2011. However, the four Choksi brothers collectively hold a minority stake of 47.41% (36,36,900 shares) which amounts to only 28.7% post-issue.

Operationally, ATWL’s recent performance is far from encouraging. From Rs 27.46 cr in fiscal 2009, the company’s top line declined to Rs 19.10 cr in fiscal 2013. Net Profit during this period fell from Rs 44 lakh to less than Rs 15 lakh. While the revenue and profits sloped downward, the company’s debtors increased from Rs 2.63 cr in 2009 to Rs 7.52 cr in 2013. 

 

Pathetic Governance

If the financial performance is bad, its corporate governance is still worse. ATWL did not comply with the appointment of full time company secretary in the year 2011. The offer document also reveals that the company had not followed the regulations regarding employee benefits. What’s more, the company failed to deposit the statutory dues with the appropriate authorities. It did not remit the Service Tax from fiscal 2009 to 2013. It didn’t pay the professional tax from fiscal 2010 to 2013. It defaulted in paying income tax between 2009 and 2012.  

While ATWL failed to make statutory payments, its group company, Choksi Circuits Private Ltd (CCPL) defaulted on loan as well as interest payments to Bank of Baroda and Gujarat Industrial Investment Corporation Limited (GIIC).  

 

Valuation 

The objects of the Issue for which funds are being raised have not been appraised by any bank or financial institution. The deployment of funds is entirely at the discretion of the promoters. There is a stiff competition in the sector from the unorganized players. In these circumstances, one cannot be too optimistic about ATWL’s prospects.

The offer price of Rs 16 seems to have been influenced more by the company’s agreement with BCCL than its fundamentals. ATWL is not a dividend paying company and its present bottom line (Rs 14.74 lakh) is too small to service the post-issue capital of Rs 12.67 cr. In view of the company’s declining revenue & profit, the promoters’ record of defaults and their pathetic corporate governance, this share cannot be priced at a premium.  ITC stable mate, Int’l Travel House, is currently priced less than 6 times its earnings. When an attractive dividend-paying stock is available at cheap P/E multiple, how can one justify a P/E of 83 for ATWL?

HOW ACE COMPARES WITH PEERS
SCRIP	M-CAP	P/E	P/BV	OPM	YLD	PRICE
	(Rs Cr)	(x)		(%)		(Rs)
Thomas Cook	1,347	28.7	3.4	28.1	0.7	54.40
Cox & Kings	1,287	14.5	1.1	51.1	1.1	94.25
Int’l Travel House	108	5.9	0.9	19.9	2.8	135.10
Ace Tours	20	83.2	1.4	7.6	0.0	16.00

 

Manager’s Track

ATWL is the first SME IPO managed by the Ahmedabad-based Corporate Strategic Allianz (CSA).  In fact, this is the first issue brought out by the merchant banker in last two years. In 2011 CSA lead-managed three public issues – all were offered on the main frame. Today all the three are quoting at a hefty discount. Timbor and Indo Thai have lost more than 85%.   

IPOs Lead-managed by Corporate Strategic Allianz
ISSUER	IPO	PRICE (Rs)			GAIN
NAME	DATE	IPO	LISTING	CURRENT	(%)
Timbor Home	30-May-11	63.00	91.20	9.00	-85.7
Rushil Decor	20-Jun-11	72.00	119.65	43.00	-40.3
Indo Thai Sec	30-Sep-11	74.00	23.00	9.88	-86.6