Steep pricing makes it unpalatable!
Real Estate industry’s current plight, indifferent market sentiment, SME-peers’ poor show on the trading screen, existing shareholders’ extremely low cost of holding, etc., make the offer uninviting.
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OFFER AT A GLANCE |
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|
Name |
Sri Krishna Constructions (India) Ltd |
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Offer Amount |
Rs 11.34 cr |
|
Offer Quantity |
25.2 lakh shares of Rs 10 each |
|
Offer on Total Equity |
26.5% |
|
Post-IPO Promo Stake |
63.3% |
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Post-IPO Capital |
Rs 9.52 cr |
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Offer Price |
Rs 45 |
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Application Quantity |
3000 & Multiples of 3000 |
|
Offer Opens |
September 10, 2015 |
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Offer Closes |
September 15, 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 25,20,000 equity shares of face value of Rs 10 at a price of Rs 45 each aggregating to Rs 11.34 cr. The IPO constitutes 26.5% of the post-issue paid up equity capital of the company. Of the public offer, 132000 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 3000 shares or Rs 1,35,000. The shares are to be listed on the SME platform of BSE.
Issue Object
Besides achieving the benefits of listing, the IPO is expected to help the company to fund the following: Land acquisition Rs 9.84 cr (87%) and General Corporate Purpose Rs 1 cr (9%). The balance issue proceeds of Rs 50 lakh (4%) is earmarked for IPO expenses.
Background
The Bangalore-based Sri Krishna Constructions (India) Ltd (SKCIL) was promoted in 2005 jointly by Kailash Dubal (39) and Rajshekhar K S with equal stake. However, for reasons best known only to the promoters, Rajshekhar walked out of the venture in October 2008 and sold his holdings (5 lakh equity shares of Rs 10 each and 1.25 lakh preference shares of Rs 10 each) at par value. In June 2015, SKCIL made a liberal bonus issue in the ratio of 5:2 thereby reducing its reserves by Rs 5 cr and enlarging its equity capital to Rs 7 cr. Currently whereas Dubal and his relatives hold 86.11% of the equity, two of Dubal’s associates, who are chartered accountants by profession, and one employee collectively hold the balance 13.89%. The promoters, claimed to have gained considerable experience in marketing of real estate layouts (plots), propose to get into full fledged real estate development through SKCIL.
Business
The primary business of SKCIL has so far been development of residential layouts. This involves identification, acquisition and development of land and marketing the same. The promoters have reportedly developed more than 20 lakh sq. ft. of residential layouts spread across Bangalore. They claim to have already executed 7 projects and are in the process of completing two more besides having identified another three projects.
Utilizing the IPO proceeds, the company proposes to buy 3 acres of land in Bangalore south and build villas with a total built up area of 1.3 lakh sq ft whose potential sale value could be over Rs 70 cr. This project is slated to be completed in 2017.
Financial Performance
As regards SKCIL’s financial track record, the company’s top line has registered impressive growth in five-year period. From Rs 2.28 cr in FY 2011, operating revenue has reached over Rs 28 cr in FY2015. The company’s bottom line too has increased in line with its turnover. On an unchanged small equity base of Rs 2 cr, SKCIL posted impressive EPS for the last three years.
However, the company’s operating margin has been fluctuating. Also in two out of last three years, the company’s operating cash flow was negative. Further, though the company boasts of a `pre-issue net worth’ of Rs 8.45 cr, the earned surplus amounts to only Rs 1.5 cr as in June this year the company capitalized reserves to the tune of Rs 5 cr. While the company has handsomely rewarded existing shareholders with a bumper bonus, it has not yet paid any dividend.
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FINANCIAL PERFORMANCE OF SRI KRISHNA CONSTRUCTIONS |
|||||
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(Rs.lakh) |
Mar-15 |
Mar-14 |
Mar-13 |
Mar-12 |
Mar-11 |
|
Operating Revenue |
2844 |
1484 |
1774 |
304 |
228 |
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Other Income |
7 |
5 |
21 |
3 |
1 |
|
Gross Income |
2851 |
1489 |
1795 |
307 |
229 |
|
Operating Profit |
439 |
183 |
202 |
84 |
15 |
|
Oper. Margin % |
15.2 |
12.0 |
10.2 |
26.5 |
5.9 |
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Finance Cost |
32 |
25 |
57 |
46 |
1 |
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Depreciation |
18 |
8 |
3 |
4 |
5 |
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Pre-tax Profit |
390 |
150 |
142 |
34 |
9 |
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Net Profit |
270 |
116 |
108 |
24 |
4 |
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Net Oper. Cash Flow |
-147 |
203 |
-387 |
123 |
20 |
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Equity |
700 |
200 |
200 |
200 |
200 |
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Reserves |
146 |
376 |
260 |
152 |
127 |
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Net Block |
247 |
44 |
33 |
24 |
28 |
Valuation
Whereas the company’s earned surplus is only around Rs 1.5 cr, SKCIL is asking for a share premium of Rs 8.82 cr from the public. By pricing the IPO at Rs 45, the management and its investment bankers have put a market cap of more than Rs 42 cr for SKCIL which discounts the latest earnings nearly 16 times. When many an established dividend paying main-frame listed realty stock is available much cheaper, a P/E multiple of more than 15 seem unwarranted for SKCIL.
Real Estate industry in general is not a market favorite. Most of the residential realty stocks are currently quoted less than 2 times of their net worth. Moreover, real estate SME’s in the listed domain have failed to impress the investors. Jet Infraventure, Sunteck Realty and VKJ Infradevelopers have even failed to get regular quotes. Under these circumstances, it is difficult for SKCIL to sustain above the offer price of Rs 45 unless and until the company significantly scales up its operations.
It’s worth noting here that, besides the promoters who would hold 63% of the post-issue equity of Rs 9.52 cr, two chartered accountants associated with the promoters who have been classified as public hold 7.62 lakh shares and 1.9 lakh shares respectively, at an average cost just Rs 2.86 a share. Hence, once the lock-in lapses, one may witness selling pressure from these non-promoter shareholders.
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HOW SRI KRISHNA CONSTRUCTIONS COMPARES |
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COMPANY NAME |
MCAP |
EQ |
REV |
NP |
P/E |
P/BV |
OPM |
YLD |
PRICE |
|
|
(Rs cr) |
(x) |
(%) |
(Rs) |
|||||
|
D.S.Kulkarni Develop |
249 |
25.80 |
389 |
20.68 |
12.1 |
0.5 |
11.2 |
1.3 |
96.60 |
|
Nitesh Estates |
203 |
145.83 |
138 |
17.65 |
11.5 |
0.4 |
27.7 |
0.0 |
13.91 |
|
Arihant Superstruct |
126 |
41.16 |
100 |
11.88 |
10.6 |
1.9 |
15.6 |
1.0 |
30.55 |
|
Ansal Buildwell |
108 |
7.38 |
89 |
11.59 |
9.3 |
1.3 |
27.2 |
0.7 |
145.80 |
|
Tirupati Sarjan |
47 |
13.19 |
163 |
7.11 |
6.7 |
1.1 |
8.4 |
2.0 |
17.95 |
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Samruddhi Realty |
34 |
10.09 |
73 |
3.22 |
10.7 |
2.6 |
13.6 |
1.8 |
34.00 |
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Vijay Shanthi Build |
22 |
26.19 |
44 |
1.49 |
14.7 |
0.2 |
5.7 |
0.0 |
8.35 |
|
Alpine Housing |
21 |
6.50 |
29 |
1.63 |
12.6 |
0.4 |
11.9 |
3.2 |
31.70 |
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Sri Krishna Const |
43 |
9.52 |
28 |
2.70 |
15.9 |
3.7 |
15.2 |
0 |
45.00 |
Perception Issues
It is unconvincing that one of the original promoters has left the company after three years without making any return on his investment of Rs 62.50 lakh and another investor sold his investment of Rs 75 lakh without any gain. Also, while the public is asked to shell out Rs 45 a share, three months earlier the company has made allotments to promoters’ relatives and associates at just par value and within a couple of days it rewarded the shareholders with a bonus thereby reducing their cost to less than Rs 3 per share. These moves are very uncommon and raise serious doubts about the promoters’ intentions. Further, the company has not complied with certain statutory requirements such as obtaining approvals, registration of resolutions, filing of form, filing of annual returns, etc..
Manager’s Track
SKCIL would be the thirteenth SME IPO handled by Pantomath Capital Advisors. Of the twelve Pantomath-managed issues already listed, only two (Women’s Next and Filtra Consultants) are currently quoting below their offer prices. Nonetheless, some of the Pantomath-associated BSE-SMEs have very poor record in terms of liquidity. For instance, Pantomath’s maiden IPO Siddhi Vinayak Shipping was traded only 61 days (16%) out of 370 days and has not been traded for many days now. Filtra Consultants, Jet Infraventure and Women’s Next have been traded less than half of the days since listing. The most appreciated one, Ultracab, was traded only 120 days out of 223 days.
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PANTOMATH CAPITAL-ASSOCIATED IPOs |
|||||||
|
SME IPO |
IPO |
IPO |
LIST |
TRADE |
LIQD |
CURNT |
GAIN |
|
|
DATE |
PRICE |
DAYS |
DAYS |
% |
PRICE |
% |
|
Siddhi Vinayak Ship |
18-Feb-14 |
25 |
370 |
61 |
16 |
NT |
– |
|
Women’s Next |
28-Mar-14 |
65 |
342 |
161 |
47 |
47.35 |
-27 |
|
Ultracab (India) |
15-Sep-14 |
36 |
226 |
120 |
53 |
155.00 |
331 |
|
Momai Apparels |
25-Sep-14 |
78 |
223 |
207 |
93 |
90.00 |
15 |
|
Jet Infraventure |
30-Oct-14 |
125 |
198 |
74 |
37 |
131.50 |
5 |
|
Supreme (India) |
16-Mar-15 |
60 |
111 |
103 |
93 |
68.80 |
15 |
|
Filtra Consultants |
24-Mar-15 |
42 |
103 |
24 |
23 |
38.25 |
-9 |
|
Ambition Mica |
23-Jun-15 |
40 |
40 |
32 |
80 |
45.50 |
14 |
|
Jiya Eco-Products |
29-Jun-15 |
19 |
38 |
38 |
100 |
22.55 |
19 |
|
M.D. Inducto Cast |
30-Jun-15 |
27 |
38 |
29 |
76 |
43.95 |
63 |
|
Majestic Research |
30-Jun-15 |
13 |
38 |
24 |
63 |
36.00 |
177 |
|
Mangalam Seeds |
29-Jul-15 |
50 |
19 |
18 |
95 |
55.20 |
10 |