Pre-issue profit bloommakes margin suspect.
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OFFER AT A GLANCE |
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Name |
R J Bio-Tech Ltd |
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Public Offer |
Fresh issue of 25.02 lakh equity shares |
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Offer Price |
20 |
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Offer Amount |
Rs 5 cr |
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IPO% on Total Equity |
26.4% |
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Post-IPO Free Float |
39.7% |
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Application Quantity |
6000 & Multiples of 6000 |
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Bid/Offer Opens |
September 10, 2013 |
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Bid/Offer Closes |
September 12, 2013 |
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Listing |
SME Platform of BSE |
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IPO Grading |
Nil |
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Lead Manager |
Sarthi Capital Advisors |
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Market Maker |
Choice Equity Broking |
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Registrars |
Bigshare Services |
Public Offer
The 7-year-old Aurangabad-based R J Bio-Tech Ltd (RJB) is going public with a fresh equity issue of 25.02 lakh shares of Rs 10 each at a fixed price of Rs 20 a piece aggregating to Rs 500.40 lakh. Of the public offer, 1,26,000 shares are reserved for the `market maker’ to the issue, Choice Equity Broking. Sarthi Capital Advisors, who is lead-managing the offer, has underwritten the entire issue. Applicants should apply for a minimum of 6,000 shares (Rs 1.20 lakh). The shares are to be listed on the SME platform of BSE.
Issue Objective
The main objects of the present IPO are to fund the working capital requirements (Rs 4.4 cr) and achieve the benefits of listing on the stock exchange. Incidentally, the lead managers’ previous two SME IPOs, Bothra Metals and Tiger Logistics, too had similar objectives!
Background
RJB belongs to the Rs 500 cr R J group founded by Raghavendra Joshi, a civil engineer. The group has as many as 29 closely held companies besides RJB. Though the group turnover is impressive, its profitability is not. Top five companies of the group, which account for more than Rs 340 cr turnover, collectively earned a profit of only Rs 2.8 cr in 2012. In fact, most of the group companies are engaged in related line of business. Having started with tyre re-treading in 1987, the promoters diversified into poultry followed by agri-based businesses. RJB is the first from the group to go public.
Incorporated in December 2005, RJB set-up its first seed processing plant near Aurangabad (Chikalthana) in December 2006. After collaborating with Global Transgenes Ltd for Fusion BT Cotton Technology, the company commenced seed sales in April 2007. The company’s turnover crossed Rs 10 cr-mark in 2010. Its second seed processing plant at Nizamabad commenced operations towards the end of 2010. RJB was converted into a public company in February 2012.
Financial Track
RJB’s top line has steadily grown from Rs 5.5 cr in fiscal 2009 to Rs 19.85 cr in fiscal 2013. Profit at the net level, which was around Rs 50 lakh until 2012, more than doubled (Rs 1.3 cr) on the eve of the public offer in 2013. Net operating cash flow, which was negative until 2012, suddenly turned positive in fiscal 2013. The company’s share capital has steadily increased from Rs 3.95 cr in 2009 to Rs 6.97 cr in 2013. Its earned surplus amounted to Rs 3.6 cr at the end of last fiscal. Due to heavy inventory carrying, the company’s interest burden has increased continuously, from Rs 20 lakh in 2009 to Rs 2.34 cr in 2013.
Prospects
RJB’s current bottom line yields an EPS of about Rs 1.40 on the post-issue equity of Rs 9.47 cr. Since the entire issue proceeds would be deployed as working capital, the company’s interest burden may come down, which could push the EPS above Rs 2. Will this be sufficient to reward the shareholders? In the absence of any dividend record, one cannot be too optimistic about the dividend prospects in the near term.
Valuation
RJB claims itself as a fast growing seed producer and the company also boasts of having a strong R&D-based business model. Its current margin too is comparable with the peer group. While the company’s track record does seem to justify the valuation (m-cap of Rs 19 cr), one should not completely overlook the fact that RJB had negative cash flow from operations in four out of last five years. Also, according to the offer document, none of the seed varieties produced by the company has been registered. Further, it is reported that the company was relying on third party growers for seed production.
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How R J Bio-Tech compares with Peer group |
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SCRIP |
M-CAP |
P/E |
P/BV |
P/R |
OPM |
YLD |
PRICE |
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(Rs Cr) |
(x) |
% |
(Rs) |
|||
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Kaveri Seed |
2,109 |
11.1 |
6.1 |
2.2 |
20.6 |
0.3 |
1,533.80 |
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Advanta |
1,078 |
39.7 |
3.0 |
12.1 |
42.2 |
0.0 |
127.85 |
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Monsanto |
1,017 |
13.6 |
2.5 |
2.2 |
17.4 |
3.7 |
589.25 |
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Camson Bio |
96 |
4.4 |
0.6 |
0.8 |
23.0 |
2.3 |
42.90 |
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R J Bio-Tech |
19 |
10.3 |
1.2 |
1.0 |
20.2 |
0.0 |
20.00 |