Long track merits price though lean margins and negative operating cash flows mar capital appreciation prospects.
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OFFER AT A GLANCE |
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Name |
Supreme (India) Impex Ltd |
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Offer Amount |
Rs 7.87 cr |
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Offer Quantity |
13.12 lakh shares of Rs 10 each |
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Offer on Total Equity |
26.84% |
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Post-issue Promo stake |
65% |
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Post-IPO Capital |
Rs 4.89 cr |
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Offer Price |
Rs 60 |
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Application Quantity |
2000 & Multiples of 2000 |
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Offer Opens |
March 16, 2015 |
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Offer Closes |
March 18, 2015 |
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Listing |
SME Platform of NSE |
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Rating |
Nil |
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Lead Manager |
Pantomath Capital Advisors |
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Market Maker |
Choice Equity Broking |
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Underwriter |
Pantomath Capital (100%) |
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Registrar |
Bigshare Services |
The Offer
Fresh Issue of 13,12,000 equity shares of face value of Rs 10 at a price of Rs 60 each aggregating to Rs 7.87 cr. The IPO will constitute 26.84% of the post-issue paid up equity capital of the company. Of the public offer, 72000 shares are reserved for the `Market Maker’ – Choice Equity Broking. The lead manager to the issue, Pantomath Capital Advisors, has underwritten the entire issue. Investors have to apply for a minimum of 2000 shares or Rs 120000. The shares are to be listed on the SME platform of NSE.
Issue Object
Besides achieving the benefits of listing, the object of the public issue is to fund the following: Working Capital Rs 7 cr (88.9%), Issue Expenses Rs 45 lakh (5.7%) and General Corporate Purpose Rs 42 lakh (5.4%).
Background & Business
The Surat-based Supreme (India) Impex Ltd (SIIL) was promoted in August 1995 by Jugalkishore Jhawar (52), a commerce graduate who reportedly has more than 25 years of experience in the textile/apparel industry. The second generation trader-promoter has in his fold about a dozen firms/companies whose aggregate turnover is estimated to be around Rs 400 cr.
SIIL claims to have ventured into highly value added textiles, mainly dress materials, catering to the international market and has reportedly transformed itself into a major exporter of women‘s clothing. SIIL offers “value-added work such as handwork, sequencing and embroidery on fabrics”. The company has recently diversified into Multi Ply Yarn which is used in making home furnishing items like carpets, terry towels, fashion fabrics and others.
In less than two decades SIIL has achieved an annual turnover of more than Rs 350 cr. The company attributes its impressive top line growth to its efficient production capacity, marketing skill and ability to incorporate new design in its product range. As per the offer document, SIIL’s sales were largely derived from exports to its distributor in Dubai, who in turn sells to other end-customers in various countries.
Financial Performance
No doubt, SIIL has registered impressive growth in its top line in recent years. From Rs 139 cr in fiscal 2010, sales have steadily surged to Rs 342 cr in FY14. The company’s operating profit too has continuously increased from Rs 8.10 cr in FY10 to Rs 21.57 cr in FY14. The company’s bottom has grown from Rs 1.67 cr in FY2010 to Rs 5 cr in FY14 as against its tiny capital base of Rs 3.58 cr yielding an EPS of about Rs 14. Through earned surplus and almost with an equal amount of share premium, the company has built up Rs 44 cr reserves by end of September 2014 which makes the intrinsic worth of the share more than double of its IPO price. SIIL has also consistently paid a small dividend of 5% for the past five years.
However, on the flip side, the company’s operations resulted in negative cash flow in all last five fiscals. Despite sales recording impressive growth year after year, the operating margin has remained stagnant around 6% for the past five years. The so called manufacturing company has added less than Rs 5 cr worth of productive assets in five long years. In fact, as compared to the company’s age and revenue, its gross block was too small at Rs 18 cr at the end of September 2014. What’s more, in fiscal 2014, more than a half of its turnover (Rs 179 cr) was outstanding as receivables (debtors) and in the first half of current fiscal, more than the entire sales of the six month period (Rs 220 cr) were to be realized!
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FINANCIAL TRACK OF SUPREME (INDIA) IMPEX |
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(Rs.lakh) |
Sep-14 |
Mar-14 |
Mar-13 |
Mar-12 |
Mar-11 |
Mar-10 |
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Operating Revenue |
18545 |
34176 |
27857 |
20536 |
17639 |
13926 |
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Other Income |
325 |
23 |
162 |
78 |
2 |
11 |
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Operating Profit |
1449 |
2157 |
1867 |
1494 |
1109 |
810 |
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Operating Margin % |
6.1 |
6.2 |
6.1 |
6.9 |
6.3 |
5.7 |
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Net Profit |
274 |
500 |
394 |
341 |
269 |
167 |
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Net Cash Generation |
995 |
-2775 |
-1826 |
-1766 |
-1565 |
-1162 |
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Equity Capital |
358 |
358 |
318 |
313 |
299 |
246 |
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Reserves |
4394 |
4120 |
3202 |
2772 |
2327 |
1458 |
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Book Value (Rs) |
132.90 |
125.24 |
110.83 |
98.61 |
87.76 |
69.38 |
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Earnings Per Share |
15.30 |
13.97 |
12.41 |
10.90 |
8.98 |
6.79 |
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Dividend (%) |
|
5.0 |
5.0 |
5.0 |
5.0 |
5.0 |
Valuation & Perception
Whereas the average cost of acquisition for the promoter works out to Rs 32.21 per share, SIIL is floating its IPO at a price of Rs 60. The company’s EPS and net worth are quite impressive. Also, considering the current bottom line (Rs 5 cr) vis-à-vis the post-issue capital (Rs 4.89 cr), the company may step up the dividend to a respectable level yielding decent dividend returns which could justify the offer price. But, what are prospects for capital appreciation?
It is indeed a paradox that better quality SMEs are going to NSE for listing yet they are poorly discounted. Quite contrary to the norms, SMEs with questionable credentials have fetched fabulous returns on BSE! Since the advent of the SME-Platform in early 2012, the country’s largest exchange, NSE, could list only six SME IPOs whereas BSE has admitted as many as 90 SMEs in the same period. The reason for this anomaly is not far to seek. There is a popular perception in the market that NSE’s listing guidelines are more stringent, protecting the investors, than BSE’s norms which are more liberal, entertaining the promoters!
How the unscrupulous SMEs go unchecked by the BSE can be gauged from the fact that many a BSE-listed SME having minuscule or no profit is currently quoted at incredible premium over its IPO price without any basis. On the contrary, the maximum return offered by more credible SMEs listed on the NSE platform is not more than 20% in two years.
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ABSURD DISCOUNTING OF SELECT BSE-SME STOOCKS |
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SCRIP NAME |
IPO DATE |
IPO PRICE |
CUR. PRICE |
P/E (X) |
Gain % |
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JUPITER INFOMEDIA * |
30-Jul-12 |
10 |
19.85 |
221 |
99 |
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SRG HOUSING FINANCE |
22-Aug-12 |
20 |
99.35 |
94 |
397 |
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BRONZE INFRA-TECH |
19-Oct-12 |
15 |
53.65 |
5365 |
258 |
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ECO FRIENDLY FOOD * |
27-Dec-12 |
2.5 |
32.80 |
656 |
1212 |
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SUNSTAR REALTY |
18-Feb-13 |
20 |
413.90 |
2178 |
1970 |
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CHANNEL NINE ENTERTAIN * |
22-Feb-13 |
2.5 |
28.10 |
– |
1024 |
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HPC BIOSCIENCES * |
1-Mar-13 |
3.5 |
45.85 |
573 |
1210 |
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VKJ INFRADEVELOPERS |
12-Aug-13 |
25 |
53.75 |
1792 |
115 |
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KUSHAL TRADELINK |
14-Aug-13 |
35 |
152.00 |
77 |
334 |
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SATKAR FINLEASE |
25-Sep-13 |
18 |
52.00 |
867 |
189 |
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CHEMTECH INDUSTRIAL |
15-Jan-14 |
15 |
40.60 |
94 |
171 |
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GCM CAPITAL ADVISORS |
5-May-14 |
20 |
115.30 |
372 |
477 |
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RAGHUVANSH AGROFARMS |
9-Jan-15 |
11 |
26.90 |
673 |
145 |
* IPO Price adjusted to Bonus/Split
SIIL is proposed to be listed on the SME platform of NSE. Though NSE’s guidelines naturally make its listings acceptable quality for investment, the market returns of NSE-SMEs do not exude much optimism for capital appreciation. Perhaps, if the trade lot is reduced, SMEs with credible track record may attract considerable retail investor interest which may alter the situation for the better.
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MARKET PERFORMANCE OF SMEs LISTED ON NSE |
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SME NAME |
IPO |
MARKET |
GAIN |
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DATE |
PRICE |
PRICE |
% |
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MITCON CONSULTANCY |
15-Oct-13 |
61 |
58.95 |
-3 |
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OPAL LUXURY TIME |
25-Mar-13 |
130 |
114.50 |
-12 |
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SANCO INDUSTRIES |
24-Feb-14 |
18 |
21.00 |
17 |
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THEJO ENGINEERING |
4-Sep-12 |
201 |
191.00 |
-5 |
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VETO SWITCHGEARS |
3-Dec-12 |
45 |
68.00 |
50 |
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MOMAI APPARELS |
25-Sep-14 |
78 |
81.00 |
4 |
Manager’s Track
SIIL’s issue manager, Pantomath Capital Advisors, has so far handled five SMEs – four on BSE and just one on NSE. Incidentally, all the five IPOs were made in the same calendar year (2014). Of the five, only BSE-listed Ultracab, that went public in September 2014, has fetched decent return with a credible P/E. The first IPO managed by Pantomath, Si.Vi.Shipping (Feb-14), is traded almost around the IPO price on BSE. The second one, Women’s Next (Mar-14), is currently languishing below the offer price. Pantomath’s first IPO on NSE-SME platform, Momai Apparels (Sep-14), is currently quoting at a nominal premium. Will the second NSE-SME IPO of Pantomath, which has almost similar business profile as Momai, fare better in terms of market return? Your guess is as good as mine!
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PANTOMATH CAPITAL LEAD-MANAGED IPOs |
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COMPANY |
IPO |
FV |
IPO |
MKT |
GAIN |
P/E |
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DATE |
Rs |
PRICE |
PRICE |
% |
(x) |
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SI.VI .Shipping |
18-Feb-14 |
10 |
25 |
25.00 |
0.0 |
78.1 |
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Women’s Next |
28-Mar-14 |
10 |
65 |
62.00 |
-4.6 |
9.5 |
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Ultracab |
15-Sep-14 |
10 |
36 |
48.40 |
34.4 |
15.1 |
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Momai Apparels |
25-Sep-14 |
10 |
78 |
81.00 |
3.8 |
22.0 |
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Jet Infraventure |
30-Oct-14 |
10 |
125 |
127.00 |
1.6 |
22.8 |