Clear cut case of money laundering? Regulators wake up! 

Nine closely-held companies whose ownership and net worth are not revealed got allotment of 49,750 shares of Rs 10 each in 2009 at a price of Rs 200 a piece. Three years later another four companies of similar nature were allotted 90,000 shares at a price of Rs 500 each. Twenty months later, three companies of the first lot along with the second lot of four sell their entire holding aggregating to 1,00,250 shares (aggregate cost being Rs 470.50 lakh) to two just a week-old closely held promoter-companies for a paltry Rs 2 per share incurring an aggregate loss of Rs 469.50 lakh! Just 9 days after the buy-out, the company rewards with a 57:2 bonus gifting additional 27.57 lakh shares thereby reducing the average cost of the share to a minuscule 7 paise. Why did the seven companies sell their investment at 99.57% discount, that too just a few days before the bumper bonus? How were they compensated for the huge loss? Tax authorities have a clear cut case to look into.        

OFFER AT A GLANCE
Name	P.B. Films Ltd
Public Offer	Fresh Issue of 50 lakh shares of Rs 10 each
Offer % on Total Equity	34.68% on Rs 14.42 cr
Post-IPO Promoter Stake	30.64%
Offer Price	Rs 10
Offer Amount	Rs 5 cr
Application Quantity	10000 & Multiples of 10000
Offer Opens	September 1, 2015
Offer Closes	September 7, 2015
Listing	BSE SME
IPO Rating	Nil
Issue Lead Manager	Guiness Corporate
Market Maker	Guiness Securities
Underwriter	Guiness Corporate (100%)
Registrar	Cameo Corporate

 

The IPO

The present offer is a fresh issue of 50 lakh shares of Rs 10 each at par of which 2.6 lakh shares are reserved for market maker. The equity capital, which is at Rs 9.42 cr at present, will increase to Rs 14.42 cr. The IPO, constituting 34.68% of the equity, will further increase the equity capital to Rs 14.42 cr. The entire issue has been underwritten by the lead manager to the offer, Guiness Corporate Advisors. The lead manager’s associate company, Guiness Securities, will act as `market maker’. Investors have to apply for a minimum of 10000 shares (Rs 1 lakh).  

 

Issue Object

The objects of the IPO are to finance business expansion plans and achieve the benefits of listing. The company believes that listing will enhance its corporate image and brand name. Of the net proceeds of Rs 4.65 cr the company proposes to spend Rs 3.33 cr on production of two films. About Rs 1.07 cr is earmarked for publicity and distribution of two films and the balance Rs 25 lakh is kept for general corporate purpose.

 

Lineage

The 2007-registered P.B. Films Ltd (PBFL) is said to be a film production house based in Kolkata, with a vision to make commercial and art films. The company produced the first film “Mr. Fantoosh” which was released in the year 2008. Since then, it has produced thirteen more Bengali films till November 2014 and few are said to be under process of production. Even though PBFL is having as many as 225 shareholders, as on the date of filing of this Prospectus, Pankaj Agrawal (39), Nirmalkunj Merchandise Ltd and Premkunj Distributor Ltd (both incorporated on the same day, January 21, 2014) are presented as promoters of PBFL.

PBFL’s group seems to have connections with hordes of companies. Nevertheless only the following eleven private limited entities are called group companies: 1. Neptune Goods Pvt Ltd, 2. Straight Line Food Products Pvt Ltd, 3. Ashirvad Corn Products Pvt Ltd, 4. Maharaja Commercial Pvt Ltd, 5. Rosewood Vinimay Pvt Ltd, 6. Natraj Tradecom Pvt Ltd, 7. Reet Advisors Pvt Ltd, 8. Well View Dealcom Pvt Ltd, 9. Ranbhumi Vincom Pvt Ltd, 10. Monarch Nirmans Pvt Ltd, 11. Ultimate Vacations Pvt Ltd.

The following companies have a noticeable stake in the so called group companies of PBFL: 1. Albino Investment Consultans Pvt Ltd, 2. Atlantic Investment Advisory Pvt Ltd, 3. Nityadhara Business Ltd, 4. Madhudhan Vyapaar Ltd, 5. Himalayan Investment Consultants Pvt Ltd, 6. Harekrishna Vyapaar Pvt Ltd, 7. Jupiter Projects Pvt Ltd, 8. Welkin Investment Consultants Pvt Ltd, 9. Reneissance Projects Pvt Ltd, 10. Link Commodities Pvt Ltd, 11. Alingan Trade-Link Pvt Ltd, 12. Prime Goods Pvt Ltd, 13. Hem Textile & Trading Company Pvt Ltd, 14. Synox Marketing Pvt Ltd, 15. Plus Jet Finvest Pvt Ltd,16. Lopax Marketing Pvt Ltd, 17. D S Consultancy & Holding Pvt Ltd,18.Atindra Infrastructure Pvt Ltd (formerly Rukmani Tie Up Pvt Ltd), 19. Anushree Tie Up Pvt Ltdand 20.Sanatan Vinimay Pvt Ltd. Nonetheless, no details about these companies are available in the offer document.

PBFL has invested in the following closely-held companies at premium during the past couple of years: Mica Mold Finserv Pvt Ltd (25 lakh), Kalahanu Trading Ltd (Rs 20 lakh), Tirupati Ashray Pvt Ltd (Rs 50 lakh) Capital Audio Video Pvt Ltd (Rs 15 lakh) Erudit Shares and Securities Pvt Ltd (Rs 15 lakh), Marble Finvest Pvt Ltd (Rs 21 lakh), Kalahanu Retail Pvt Ltd (15 lakh), Tarouna Cold Storage Pvt Ltd  (Rs15 lakh), Shree Hari Om Ores and Minerals Pvt Ltd (18 lakh), Lokhnath Commotrade Pvt Ltd (Rs 15 lakh) and Svaraj Trading and Agencies Ltd (Rs 116 lakh). However, the back ground details of these companies are not disclosed.

The nature of the companies that the promoters have associated with gives a feeling that PBFL’s promoters are more interested in investments and `money conversion’ than any other credible business. It is worth noting here that some of the companies, where PBFL has invested in the past and also some companies from whom PBFL group companies have received investments, are also involved in some of the BSE-SMEs whose credentials are dicey.   

 

Financial Track

As regards PBFL’s financial performance, its track record is far from stable. Of the last five years, Operating income has fluctuated between Rs 7 lakh and Rs 508 lakh. Whenever operating revenue dropped, the company thrived on `other income’. Yet, the company has failed to generate net cash from its activities.

P B Films’ Financial Performance
(in lakh)	Mar-15	Mar-14	Mar-13	Mar-12	Mar-11
Operating Revenue	508	310	7	34	448
Other Income	6	5	165	331	1
Gross Income	514	315	172	365	449
Operating Profit	39	19	14	28	12
Oper. Margin %	6.5	4.5	–	–	2.4
Interest	6	2	1	1	1
Depreciation	25	7	8	9	6
Net Profit	10	8	5	15	4
Net oper. cash flow	-173	-177	-4	-357	185
Equity Cap	942	819	15	15	6
Reserves	26	16	434	429	-27
Net Block	64	50	28	33	22
Borrowings	34	17	3	6	9

 

Valuation & Perception

PBFL is offering shares only at par value (Rs 10) though three years ago it had issued at Rs 500 to Active Tie-up Pvt Ltd (20,000 shares), Omkara Investment Advisory Pvt Ltd (20,000), Ratnamani Financial Advisory Pvt Ltd (30,000) and Standard Barter Pvt Ltd (20,000). Earlier, in 2009 the company had issued shares at a price of Rs 200 a piece to Hill View Hire Purchase Pvt Ltd (2,000), Gemini Barter Pvt  Ltd (3,000), Sinjan Vinimay Pvt Ltd (9,500), Kritika Vyapaar Pvt Ltd (3,250), Anushree Tie- Up Pvt Ltd (2,000), Durbhasha Distributors Pvt Ltd (12,500), Mandyati Dealcom Pvt  Ltd (5,000), Modern Publicity Pvt Ltd (7,500), Vijay Lakhmi Vanijya Pvt Ltd (5,000).

Of the above 1.39,750 shares, as many as 1,00,250 shares were bought by PBFL’s corporate promoters  Premkunj Distributor Ltd and Nirmalkunj Merchandise Ltd on January 29, 2014 at a throw-away price of Rs 2 per share which was followed by a bumper 57:2 bonus (28,57,125 shares) on 07/02/2014. In other words, while the public is asked to shell out Rs 10, the promoter-companies’ cost is just 7paise! The seller companies might have booked capital losses, which they could have used to set off against the capital gains they would have made from other transactions. The promoter entities, by buying the shares at a very low rate, have indirectly indicated the true worth of the company which is being taken public!

In fact, PBFL has many other interesting aspects too. In five years between 2008 and 2013, the company has changed its registered office as many as four times. Dinesh Kumar Agarwal was wrongly appointed as “Promoter Non Executive Director” on October 31, 2013 but the same was realized and change in his designation form was filed on December 13, 2014. Also, Sanjay Kumar Agarwal was wrongly appointed as “Promoter Non Executive Director” on October 26, 2012. What’s more in 2010-11 RSVA & Co. was appointed in the place Agarwal A & Co. as the latter wished to resign due to pre-occupation. Next year, Agarwal A & Co. came back as RSVA & Co. wished to resign due to pre-occupation! Come 2014-15, RSVA & Co. was once again appointed as auditors since Agarwal A & Co. resigned due to pre-occupation!

 

Lead Manager’s Track

SME specialist-merchant banker, the Kolkata-based Guiness Corporate Advisors, who dominates the BSE-SME platform with listing of 17 IPOs, seem to patronize clients of almost same character. Many an IPO of Guiness has derived income from non-operating sources. For most of them, main activity is investment in shares! Many of Guiness IPOs have an unassuming promoter stake of less than 25%. The core promoters (individuals) would hold only a minuscule percentage of the post-issue equity and unknown entities acquire significant quantum of shares through private transfers either at exorbitant prices or at heavy discounts. Most of them have private placements with public category of investors before going public. These IPOs seem to serve only some `club class fly-by-night operators’ but as usual our regulators turn a blind eye!