Sound fundamentals and reasonable pricing should ensure decent returns in the long run.
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OFFER AT A GLANCE |
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Name |
Jiya Eco-Products Ltd |
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Offer Amount |
Rs 4.58 cr |
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Offer Quantity |
24.12 lakh shares of Rs 10 each |
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Offer on Total Equity |
27.01% |
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Post-issue Promo stake |
62% |
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Post-IPO Capital |
Rs 8.93 cr |
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Offer Price |
Rs 19 |
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Application Quantity |
6000 & Multiples of 6000 |
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Offer Opens |
June 29, 2015 |
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Offer Closes |
July 2, 2015 |
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Listing |
SME Platform of BSE |
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Rating |
Nil |
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Lead Manager |
Pantomath Capital |
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Market Maker |
BCB Brokerage |
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Underwriter |
Pantomath Capital (100%) |
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Registrar |
Bigshare Services |
The Offer
Fresh Issue of 24,12,000 equity shares of face value of Rs 10 at a price of Rs 19 each aggregating to Rs 4.58 cr. The IPO will constitute 27% of the post-issue paid up equity capital of the company. Of the public offer 1,26,000 shares are reserved for the `Market Maker’ – BCB Brokerage. The lead manager to the issue, Pantomath Capital Advisors, has underwritten the entire issue. Investors have to apply for a minimum of 6000 shares or Rs 1,14,000. The shares are to be listed on the SME platform of BSE.
Issue Object
Of the issue proceeds of Rs 4.58 cr, the company intends to utilize Rs 2.65 cr (58%) towards procurement of new machinery, Rs 1.53 cr (33%) for working capital and the balance Rs 40 lakh (9%) is earmarked for IPO expenses.
Business & Background
The Gujarat-based Jiya Eco-Products Ltd (JEPL) is relatively a new company but has an impressive beginning. Incorporated in December 2011, JEPL succeeded in setting-up a manufacturing unit at Navagam, Bhavnagar in the very next year. Today it is an ISO 9001:2008 company certified company, engaged in the manufacture of bio-fuels viz. bio-briquettes and bio-pellets which is an alternative source of energy and has the ability to replace traditional fossil fuels like coal, firewood, lignite, etc.
In just two years, the company built up a capacity of more than 32000 tonnes of briquettes/pellets which is now proposed to be gradually increased to 47520 tonnes of briquettes by FY16 and 47520 tonnes of pellets by FY17. According to the company, the location of its factory gives the company competitive edge over other players in terms of procurement and availability of raw material throughout the year. JEPL reportedly has collection centres spread over surrounding villages to source agricultural waste which serves as the major raw material. Also the company claims to have arrangements with various Gram-Panchayats in the State of Gujarat for procurement of solid waste, which serves as another important raw material for its business.
Bio-briquettes and bio-pellets are highly combustible and have reportedly found favour amongst industrial houses, cafeterias, hotels, dhabas, bakeries etc. due to the cost savings they offer. Also they are eco-friendly and carbon neutral. They can effectively help meet the energy and heat requirements in the industrial & commercial segments.
With the global and industrial realization of environmental benefits of use of bio-fuel which includes renewability, pollution control, use of agricultural waste, etc., JEPL has received various incentives from Government including tax holiday, interest rate subvention and VAT exemption. According to the management, the company is exempted from Income Tax for eight years and fully exempted from excise.
Financial Performance
Even though commenced operation in 2012, JEPL posted respectable results only in fiscal 2014. On a turnover of Rs 14 cr, the company reported an operating profit of Rs 2 cr, margin being 14.7%. It netted Rs 1.05 cr against a capital of Rs 4.99 cr. Nevertheless, JEPL’s operating cash flow was negative in FY14. In the first nine months of FY15, JEPL top line has surged to over Rs 20 cr on which operating profit amounted to Rs 3.74 cr (18.3%) and the company’s operating cash flow turned positive. However, on the flip side, the company’s debtors shot up from Rs 5.62 cr in FY14 to Rs 9.25 cr in 9-months of FY15 which is almost a half of the company’s sales.
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FINANCIAL TRACK OF JIYA ECO-PRODUCTS |
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(Rs in lakh) |
Dec-14 |
Mar-14 |
Mar-13 |
Mar-12 |
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Sales |
2046 |
1401 |
165 |
1 |
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Other Income |
0 |
1 |
0 |
0 |
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Gross Revenue |
2046 |
1402 |
165 |
1 |
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Operating Profit |
374 |
206 |
36 |
-1 |
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Operating Margin % |
18.3 |
14.7 |
21.5 |
0 |
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Net Profit |
240 |
105 |
7 |
-1 |
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Equity Capital |
652 |
499 |
99 |
1 |
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Reserves |
476 |
111 |
6 |
-1 |
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Net Cash from Operation |
101 |
-28 |
-5 |
1 |
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Gross Block |
1116 |
593 |
242 |
0 |
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Trade Debtors |
925 |
562 |
99 |
1 |
Valuation & Perception
In three and a half years, JEPL has built a gross block of Rs 11 cr which is almost equal to the company’s net worth at the end of December 2014. Going by its current production and price realization, the company’s turnover could be over Rs 100 cr when it utilizes the full capacity by fiscal 2018. On such turnover, the company’s profitability should be impressive as compared to its post-issue equity of Rs 8.93 cr. The company had earlier planned the IPO at Rs 30 a share and had allotted some shares to promoters and relatives in October/December 2014 at the same price. Considering the above, the present offer price of Rs 19 looks quite reasonable.
Perhaps, the only factor that may go against the company and its promoters is the corporate governance issues. As per the disclosures made in the offer document, the company did not file certain annual returns with respect to shareholding in the past. Also, it has not complied with statutory provisions with regard to related party transactions. Early this year, promoters’ partnership firm, Sahaj Chemical Industries, received an order from Gujarat Pollution Control Board to stop production due to violation of pollution control norms.
Manager’s Track
The IPO of JEPL is the ninth SME handled by Pantomath Capital Advisors. Though the quality of many a SME listed on the BSE is far from satisfactory, the SME IPOs handled by Pantomath seem to have better credentials. In terms of liquidity too, Pantomath has a better average than the SMEs of both BSE and NSE.
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PANTOMATH CAPITAL LEAD-MANAGED IPOs |
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SME IPO |
IPO |
LISTING |
DAYS |
DAYS |
TRADING |
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DATE |
PERIOD |
LISTED |
TRADED |
DAYS % |
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SIDDHI VINAYAK SHIP |
18-Feb-14 |
16 |
319 |
56 |
18 |
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WOMEN’S NEXT |
28-Mar-14 |
24 |
291 |
144 |
49 |
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ULTRACAB |
15-Sep-14 |
25 |
175 |
89 |
51 |
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MOMAI APPARELS |
25-Sep-14 |
21 |
172 |
171 |
99 |
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JET INFRAVENTURE |
30-Oct-14 |
26 |
147 |
58 |
39 |
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SUPREME (INDIA) |
16-Mar-15 |
15 |
60 |
53 |
88 |
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FILTRA CONSULTANTS |
24-Mar-15 |
22 |
52 |
19 |
37 |
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COMPOSITE |
|
21 |
1216 |
590 |
49 |