Cronies’ merry is investors’ worry!

In 2012 Aryaman acted as a lead manager and helped BCB to tap capital market and now BCB is lending its name as manager and market maker to Aryaman for tapping the market! Aryaman Capital admits that its prospects largely hinge on its parent company Aryaman Financial. When the parent company itself has failed to reward its shareholders even after seven long years under the new management, what great reward can one expect from its subsidiary?   

OFFER AT A GLANCE
Issuer Name	Aryaman Capital Markets Ltd
Offer Amount	Rs 4.31 cr
Offer Quantity	35.9 lakh shares of Rs 10 each
Offer on Total Equity	30%
Post-issue Promo stake	70%
Post-IPO Capital	Rs 11.98 cr
Offer Price	Rs 12
Application Quantity	10,000 & Multiples of 10,000
Offer Opens	September 25, 2014
Offer Closes	October 1, 2014
Listing	SME Platform of BSE
Rating	Nil
Lead Manager	BCB Brokerage
Market Maker	BCB Brokerage
Registrar	Bigshare Services

 

The Offer

The present offer from Aryaman Capital Markets Ltd (ACML) is the seventy-first IPO to hit the BSE’s SME Platform. The IPO is a fresh issue of 35.9 lakh shares of Rs 10 each at a price of Rs 12 a piece. Investors need to apply minimum 10000 equity shares. The Issue is fully underwritten by BCB Brokerage who is acting as lead manager as well as market maker.

 

Issue Object

The company intends to use Rs 182 lakh for investing in listed as well as unlisted securities including for acquisition of market making inventories. Nonetheless, the investment avenues are yet to be identified. Out of the issue proceeds, the company also proposes to repay loans worth Rs 216 lakh and Rs 31 lakh was earmarked for issue expenses.

 

Parentage

The promoter of ACML -, Aryaman Financial Services Limited (AFSL) is not new to the investing public. Floated in 1994 by the NRI promoters of Sunflag Steel fame, Bhardwajs, through their Mauritius outfit Aryaman Holdings Ltd, AFSL went public in 1995. As a category – I Merchant Banker registered with SEBI, AFSL managed as many as 62 public issues between 1995 and 2004. Nevertheless, the quality of most of the IPOs handled by AFSL was such that more than a half of companies vanished post-issue. AFSL’s own performance too became so pathetic and its Rs 10 paid up stock went abegging at around one rupee in 2002.

When the original promoters could not salvage Aryaman till 2006, Mahshri Enterprises Private Limited, promoted by 22-year old Shripal Shah, acquired substantial (65.66%) control from Aryaman Holding Limited in 2007. Currently, Shripal Shah (29) and his brother Shreyas Shah (26) are the executive directors of the company. Strangely, the Mumbai-head quartered company continues to have its registered office in New Delhi at C/o Thakur Research Foundation, Deen Dayal Marg. The shares of AFSL were originally listed on BSE, ASE and DSE. The company made an application in 2013 to Ahmedabad Exchange for delisting and the application is reportedly still pending. Meanwhile the scrip is suspended from Delhi Stock Exchange too. Currently it is traded only on BSE.

Since the change of management in 2007, AFSL claims to have completed 2 Main Board IPOs, 11 SME IPOs, 13 Open Offers, 1 Delisting Offer, and many other valuation and corporate advisory activities. Also it has reportedly received the award for being one of the “Top Performing” Merchant Bankers in the SME Segment from BSE for last two consecutive years. After the take-over by new management, AFSL’s stock price has improved though the company is yet to clear past losses and join the dividend list.

 

Company Track

Incorporated as Aryaman Broking Limited in 2008, ACML undertook investment-based activities initially. Subsequent to its registration as market maker with BSE SME in 2013, it undertook the business of market making in various equity shares and changed its name to the present one. From just Rs 22 lakh in FY2012, ACML increased its revenue to Rs 2.93 cr in FY2014. However, in four out of last five years including last three years, cash flow from operation has been negative.

For fiscal 2014 ACML posted a net profit of Rs 6.44 lakh against Rs 8.39 cr equity capital. The reason for the dismal profitability is not far to fetch. The company has deployed a significant portion of its funds in unproductive investments. The single largest investment is Rs 2.63 cr in the group’s commodity brokerage firm, Overskud Multi Asset Management Pvt Ltd. This company’s EPS in 2013 was just 30 paise but the shares were acquired for Rs 150 a piece! Also, ACML has acquired about 14% (3.59 cr shares) in Indtra Deco which is currently languishing at less than 30 paise per share (Re 1 paid-up).

For reasons best known to the management, ACML has locked in more than Rs 73 lakh in the shares of Yash Birla group companies. It is worth noting here that, Aryaman Financial’s former managing director P.V.R Murthy joined Yash Birla group a few years ago and was arrested early this year for the group’s default of payments.

Another interesting aspect is, ACML has significant inventories in SME IPOs even though it was not a market maker. For instance, it has Rs 1.27 cr in BCB Finance shares whose designated market maker was IKAB Securities. Also, it holds more than 1.08 lakh shares valued Rs 24 lakh in Jupiter Info Media whose market maker was BCB Brokerage.  ACML has more than Rs 64 lakh in SRG Housing & SRG Securities whose market maker was ISJ Securities. It appears that SME IPO lead managers and market makers help each other for survival.    

 

Prospects

Post-IPO ACML’s capital would increase to Rs 12 cr. Obviously the company’s present profitability is too insignificant to service its equity. The IPO risk factor reveals that ACML’s future largely depends on the parent company and its management. Having been a wholly owned subsidiary of AFSL, ACML has carried out various fund based and secondary market activities of the group. But, will AFSL share all its group business with ACML after diluting 30%? AFSL being the largest (70%) stakeholder, it may continue to help ACML in soliciting new businesses. But, will it help ACML make enough profit to service the capital? If it is capable of helping its subsidiary, why couldn’t it succeed for itself?