Twenty-three year-old commerce graduate with just 16% equity stake, four auditors in five years, negative cash flow in last four years of operations, etc., etc. speak volume!

When elite investment bankers are reluctant to float even blue-chip IPOs, like Wonderla Holidays, on the main frame of the stock exchanges, Kolkata’s little known SME–specialist merchant banker, Guiness Corporate Advisors, is bringing out its eighth IPO of the year! Incidentally, all the Guiness-managed IPOs have chosen the more lenient Bombay Stock Exchange (BSE) Platform than the National Stock Exchange (NSE) which is more stringent in entertaining the `club class’ SMEs. 

Since the advent of the SME platform in February 2012 thirty eight issuers have chosen the route of which only three went to the NSE. An interesting aspect of the SME-IPOs listed so far is, fundamentally strong companies that went to NSE are quoting at a discount while the ones who had questionable credentials and got listed on the BSE are boasting fabulous premiums albeit irregular trading.

Most of the BSE-listed SMEs’ pre-IPO source of funds is questionable. Also, many a BSE-SME has no link between its name and its main activity! Take the examples of Guiness’ last three IPOs. e-Dynamics Solutions was presented as a hi-tech e-commerce company, Alacrity Securities was supposed to have been in broking business and Satkar Finlease sounds like an asset-finance company. Nevertheless, all these companies’ main activity is investment in shares!

Coming to the present lPO, the Delhi-registered Satkar Finlease Ltd (SFL), though incorporated nearly seventeen years ago in January 1996, had revenue of just Rs.2000 (two thousand) in fiscal 2009 despite having a net worth of more than Rs 1 cr. Even while it did not have a visible profit, the company collected unreasonable premiums in 2011 (Rs 13.95 and Rs 20 on Re 1 paid-up share) through private placements. Without having a credible track record, the company raised Rs 17.75 cr as share premium in fiscal 2011 and capitalized Rs 5.77 cr in August 2013 through a bonus issue. The company’s net worth has thus been more than Rs 21 cr for the past three fiscals but, leave alone the bottom line, its top line itself is yet to reach the Rs 1 cr mark! The company, whose bottom line is only Rs 11 lakh against its existing capital of Rs 11.54 cr (EPS being less than 10 paise), proposes to increase the capital through the public issue to over Rs 19 cr at an additional share premium of Rs 6 cr.

If the post-listing record of BSE-listed SMEs is any indication, these look alike fly-by-night operators may show capital appreciation through manipulations. But, will they survive long?  SFL’s credentials speak loud and clear.

The company has changed its auditors thrice in last four years. Its registered office has been shifted thrice in less than a decade. The 23 years old promoter does not seem to have any expertise in the proposed line of business. The total promoter stake, including a body corporate (whose financials are far from convincing), is just 22.5% and their average cost of holding is only Rs 12.50 as compared to the IPO price of Rs 18. Interestingly, only a month ago the company has allotted 25 lakh shares at par to two non-promoter entities whose ownership is not disclosed.

The offer document compares Satkar with a highly reputed industry peer like Sundaram Finance. It is indeed a sacrilege to make such comparison. Satkar has no credible record to speak about. The company has reported negative cash flows for the past five years. It faces risks associated with providing loans against shares (LAS). Also, a significant amount of the so called asset-finance company’s funds are locked in unproductive investments whose disposability is doubtful.