Fishy promoters utterly lacking corporate governance!
If final offer document is not uploaded even on the day of IPO opening by the market regulator, designated stock exchange, lead manager and the issuer, imagine what would be the quality of the issue. This is what has happened to the Mumbai-based Subh Tex (India) Ltd (STIL).
The Offer
The 1987-registered STIL is making a fresh public issue of 35 lakh shares of Rs 10 each at par. The issue is lead managed by a little known Hyderabad-based merchant banker, Basan Financial Services, who has underwritten 15% of the issue. The lead manager’s associate, Basan Equity Broking, who is also acting as a `market maker’, has underwritten as much as 85% (Rs 2.98 cr). The IPO is to be listed on the SME platform of BSE. The entire net issue proceeds (Rs 3 cr) is earmarked for long term working capital.
Poor Governance
The issue advertisement claims that the IPO will remain open between 30th September 2013 and 7th October 2013. However, the offer document with an issue date is yet to be found anywhere. What is available in the BSE’s website is the draft prospectus dated July 13, 2013 which does not specify the issue date!
Neither the company’s site nor the lead manager’s has the final issue prospectus. As per the draft document, the company’s registered office is located at Dhobi Talao Lane, Mumbai – 2 and Jitendra Tiwari is designated as “Company Secretary and Compliance Officer”. However when tried to contact the compliance officer at the address given in the draft offer document, neither the company secretary nor any director was available at the registered office!
The registrar to the IPO, Sharepro Services, directed the caller to the merchant banker in Hyderabad. Interestingly, the designated merchant banker’s representative, V R Amitkumar, too was not available for any clarification! The merchant banker’s office directed the query to another ‘compliance officer’, Nikhil Agarwal, who promised to make the company management answer the IPO-related queries but could do nothing. Looking at the quality of BSE-SME IPOs, one wonders whether the country has any regulator to control capital issues!
Unassuming Track
Though STIL is more than a 25-year-old company and claims to have got ISO 9001 certification, its financial track record is far from impressive. The company’s fixed asset has been almost static around Rs 6 cr for six years. Whereas its trading turnover has steadily increased from less than Rs 3 cr in fiscal 2008 to over Rs 33 cr in fiscal 2013, the company’s manufactured-sales declined from Rs 16 cr in 2008 to less than Rs 10 cr in 2013. What’s more, a significant amount of trading turnover comes from related parties.
Even on a turnover of Rs 45 cr in the first ten months of fiscal 2013, it could net a profit of only Rs 18 lakh. This gives an EPS of 29 paise on the existing equity (Rs 7.5 cr) and 20 paise on the post-IPO Equity (Rs 11 cr). The company claims to have reserves of more than Rs 8.75 cr against which it has contingent liabilities to the tune of Rs 3.75 cr pertaining to excise and income tax dispute. As against the sales of Rs 45 cr in January 2013, debtors stood at over Rs 22 cr of which Rs 13 cr were outstanding for more than six months. The company has never paid dividend in its 25-years history, nor has it managed to have own registered office!
Fishy Promoters
The promoters of STIL have been changed twice. The company was originally incorporated as Ravi Synthetic by M/s. Devanad Aswani, Shyam Chawla, Gulab Majithia and Hansa Majithia. The company was taken over by Vinay Poddar and Ashok Gupta of Santowin fame in 1991. The present promoters, Shradha Gupta and Santosh Kumar Saraf, took over the company only a year ago, in July 2012. Interestingly, Vinay Poddar, who resigned from the company as director, has re-joined as a CEO!
According to the draft document, the promoters do not have any experience or background in manufacturing of suiting or shirting. If they do not have any experience, why are they venturing into an untested field? It is interesting to note here that the present promoters of STIL are actually relatives of the promoters of Santowin Corporation – a BSE listed company.
Santowin has a close working relationship with STIL which shows that the former promoters of STIL have not severed their ties with the company managed by their relatives. Then, why Santowin’s Guptas are distancing from STIL? Well, when Santowin’s shares are going at a heavy discount (Re 1 paid-up is quoting at 48 paise) on BSE, how can they convince the investing public to subscribe to Subh Tex?
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OFFER AT A GLANCE |
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Name |
Subh Tex (India) Ltd |
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Offer Amount |
Rs 3.5 cr |
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Offer Quantity |
35 lakh shares of Rs 10 each |
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Offer on Total Equity |
31.8% |
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Post-issue Free Float |
60.9% |
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Post-issue Promo stake |
39.1% |
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Post-IPO Capital |
Rs 11 cr |
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Offer Price |
Rs 10 |
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Application Quantity |
10,000 & Multiples of 10,000 |
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Offer Opens |
September 30, 2013 |
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Offer Closes |
October 7, 2013 |
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Listing |
SME Platform of BSE |
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Rating |
Nil |
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Lead Manager |
Basan Financial Services |
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Market Maker |
Basan Equity Broking |
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Registrar |
Sharepro Services |