Allotment of `rights’ shares to `public’ shareholder at more than thrice the IPO price raises suspicion.
Why should a public shareholder buy a share at Rs 78 if it were to be available seven months later at Rs 25? If the rights shareholder is willing to forego more than Rs 86 lakh of his investment value, surely, he needs to explain the colour of his money! Ahimsa is yet another sample of NSE’s fallen standard of due diligence.
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OFFER AT A GLANCE |
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|
Name |
Ahimsa Industries Ltd |
|
Offer Amount |
Rs 3.8 cr |
|
Offer Quantity |
15.18 lakh shares of Rs 10 each |
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Offer on Total Equity |
27.7% |
|
Post-issue Promo stake |
69.3% |
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Post-IPO Capital |
Rs 5.47 cr |
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Offer Price |
Rs 25 |
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Application Quantity |
6000 & Multiples of 6000 |
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Offer Opens |
September 24, 2015 |
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Offer Closes |
October 1, 2015 |
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Listing |
SME Platform of NSE |
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Rating |
Nil |
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Lead Manager |
Sarthi Capital Advisors |
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Market Maker |
Choice Equity Broking |
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Underwriter |
Sarthi Capital Advisors (100%) |
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Registrar |
Bigshare Services |
The Offer
Fresh Issue of 15.18 lakh equity shares of Rs 10 at a price of Rs 25 a share. The IPO constitutes 27.7% of the post-issue paid up capital of the company. Of the public offer, 78000 shares are reserved for the `Market Maker’ – Choice Equity Broking. This would be the twelfth SME IPO for the lead manager to the issue, Sarthi Capital Advisors, who has underwritten the entire issue. Investors have to apply for a minimum of 6000 shares or Rs 1,50,000. The shares are proposed to be listed on the SME platform of NSE. Incidentally, this would be the tenth SME IPO on the NSE platform as compared to 111 on BSE-SME.
Issue Object
The company believes that listing on the stock exchange will enhance its corporate image, brand name and create a public market for its equity shares. Besides achieving the benefits of listing, the IPO will help the company for funding its long term working capital (Rs 3.10 cr) and general corporate purposes (Rs 25 lakh).
Background
The Ahmedabad-based Ahimsa Industries Ltd (AIL) was formed in 1996 by Ashutosh Gandhi and Lalit Shah. Ashutosh (49), promoter-managing director of AIL, is claimed to be a `Plastic Engineer’ from Technical Examinations Board of Gujarat. He reportedly worked with Jyoti Plastic Industries at Vatva from 1988-1989. Thereafter till year 1990 he was with SDC Polyurethane Pvt Ltd as a Design Engineer. During 1990-1995 he worked as a consultant in polymer processing in African countries. AIL was initially engaged in merchant exporting mainly focusing on sugar confectionery machinery, moulds & plastic processing machinery, etc. Ashutosh Gandhi & family bought out Lalit Shah’s stake in fiscal 2000.
Along with merchant export activity, AIL decided to go for a green field manufacturing project in 2010 and bought an industrial plot in Deveraj Industrial Park located at Piplaj, on the outskirts of Ahmedabad. At the world famous K show in Dusseldorf (Germany) AIL booked world’s latest Husky – all electric PET Preform injection molding system.
The company reportedly commenced commercial production of PET Preform with 3 start Alaska neck preforms on HPET 180 in December 2011 under the `Greenpet’ brand. Due to better quality and design, Greenpet is now an approved by well known national & multinational brands like Railneer, Bisleri, Kingfisher, Royal Stag, etc. Greenpet is said to have drastically brought down the weight of pet bottles.
In 2013, AIL expanded its operations by adding about 10000sq ft industrial shed for HPET 230 AE, 48 cavity injection molding system. For the second H-PET AE system, the company has chosen small weight preforms of PCO 1881 (short neck). This is said to be well received by both overseas as well as domestic carbonated soft drinks & Juice industry. AIL is also engaged in trading of textile products like suiting & Shirting, dyed & grey fabrics, etc. It derived a turnover of Rs. 11.14 cr from trading activity in last fiscal.
Financial Performance
Even though AIL’s product profile looks attractive, its financials give a mixed feeling. AIL has an installed capacity of 3000 MT of PET Preform. In last three years its production has gradually increased from 854 MT to 1589 MT. The company’s top line, which was around Rs 7 cr in FY12, has leapt to over Rs 32 cr in FY15. Whereas its domestic sales have jumped from Rs 67 lakh in FY12 to Rs 27 cr in FY15, exports have declined from Rs 6 cr to rs 5.11 cr during the period. In fact, the company’s sales growth in FY15 was largely attributed to trading of textile products. Trading purchases amounted to over Rs 13 cr in fiscal 2015 as compared to just Rs 92 lakh in the previous year.
The company’s margin too has been wildly fluctuating. From 5% in fiscal 2012, AIL’s margin shot up to over 20% in fiscal 2013. Next year, the profit margin plummeted to 11% and in fiscal 2015, it further slumped to 6.8%. In FY15, the company had other income of Rs 70 lakh including “Credit Balances Written Off” Rs 31 lakh. Yet, it ended at a loss of Rs 81 lakh. The company’s turnover increased Rs 9 cr in fiscal 2015 but its trade receivables went up by Rs 11.5 cr. From a negative operating cash flow of Rs 2.12 cr in fiscal 2014, the company posted a positive cash flow of Rs 4.89 cr in fiscal 2015. This was possible only through a significant rise in trade payables!
AIL’s capital was only Rs 63 lakh until fiscal 2014. This was enhanced to Rs 3.96 cr in last fiscal through a 5:1 bonus issue. Currently, the company has reserves worth Rs 1.83 cr against which, it is asking for an issue premium of Rs 2.28 cr.
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FINANCIAL PERFORMANCE OF AHIMSA INDUSTRIES |
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(Rs.lakh) |
Mar-15 |
Mar-14 |
Mar-13 |
Mar-12 |
Mar-11 |
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Sales Turnover |
3207 |
2138 |
1468 |
674 |
724 |
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Other Income |
70 |
39 |
38 |
18 |
27 |
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Gross Income |
3277 |
2177 |
1506 |
692 |
751 |
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Operating Profit |
288 |
276 |
338 |
52 |
44 |
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Oper. Margin % |
6.8 |
11.1 |
20.5 |
5.0 |
2.4 |
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Finance Cost |
136 |
100 |
54 |
11 |
4 |
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Depreciation |
226 |
169 |
105 |
33 |
14 |
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Net Profit |
-81 |
17 |
148 |
28 |
16 |
|
Net Oper. Cash Flow |
489 |
-212 |
42 |
307 |
122 |
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Trade Receivables |
1369 |
215 |
96 |
37 |
35 |
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Equity Capital |
396 |
63 |
63 |
53 |
53 |
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Reserves |
183 |
469 |
452 |
255 |
212 |
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Net Block |
1307 |
1300 |
1288 |
906 |
246 |
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Borrowings |
1146 |
1332 |
802 |
315 |
16 |
Valuation & Concern
AIL has priced its share at Rs 25 which discounts its book value 1.7x, net block 1x and revenue 0.4x. A comparable peer, AMD Industries, is also quoting around the same price but with lower multiples. In fact, AMD is offering an attractive yield of 3.5% on its current price. In the absence of profit at the net level, one cannot expect AIL to quote higher than AMD.
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HOW AHIMSA COMPARES WITH PET PREFORM & BOTTLE PEERS |
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COMPANY |
MCAP |
EQ |
NB |
Sales |
NP |
P/E |
P/BV |
P/R |
P/NB |
OPM |
YLD |
PRICE |
|
|
(Rs Cr) |
(x) |
(%) |
(Rs) |
||||||||
|
AMD Ind |
49 |
19.17 |
92 |
181 |
5.21 |
9.5 |
0.4 |
0.3 |
0.5 |
14.2 |
3.5 |
25.70 |
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Pearl Poly |
23 |
16.83 |
57 |
198 |
-1.56 |
– |
0.4 |
0.1 |
0.4 |
5.3 |
0.0 |
13.90 |
|
Ahimsa Ind |
14 |
5.47 |
13 |
32 |
-0.81 |
– |
1.7 |
0.4 |
1.0 |
6.8 |
0.0 |
25.00 |
In the post-issue equity of Rs 547 lakh, the promoters would hold as much as Rs 379 lakh (69%) at an average cost of just Rs 5.23 per share. It is intriguing that in February 2015, AIL made rights allotment of 1,63,450 shares at Rs 78 each to a public shareholder, Salim Shabudin Lakhani. At the current IPO price, the so called public shareholder would be losing more than Rs 86 lakh. Why should a public shareholder buy a share at exorbitant price if it were to be available seven months later at less than one-third? If the rights shareholder is willing to forego more than two-thirds of his investment value, surely, he needs to explain the colour of his money!
Another interesting aspect of AIL is, the company has entered into an agreement with the promoter-directors Ashutosh Gandhi and Sneha Gandhi for using their flat in Vile Parle (E), Mumbai for the purpose of “stay and residence of employee and guest”. AIL will be paying Rs 50,000 each to the directors every month. For a loss making company whose employee strength is only 21, paying Rs 12 lakh p.a. to the promoters for the use of their flat is certainly not in the interest of the public shareholders.
Promoter & Cost of Holding
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PROMOTERS’ COST OF HOLDING |
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DATE |
ACQUISITION |
SHARES |
COST |
VALUE |
|
24-Jan-96 |
Subscription to MoA |
200 |
10 |
2,000 |
|
31-Mar-97 |
Further Allotment |
15,000 |
10 |
150,000 |
|
22-Oct-97 |
Further Allotment |
61,000 |
10 |
610,000 |
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8-Sep-99 |
Further Allotment |
15,000 |
10 |
150,000 |
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31-Jan-04 |
Bonus 1:1 |
91,200 |
0 |
0 |
|
23-Nov-10 |
Further Allotment |
100,000 |
10 |
1,000,000 |
|
25-Nov-10 |
Further Allotment |
147,500 |
10 |
1,475,000 |
|
1-Dec-10 |
Further Allotment |
80,000 |
10 |
800,000 |
|
29-Mar-11 |
Further Allotment |
19,400 |
500 |
9,700,000 |
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7-Dec-12 |
Further Allotment |
102,790 |
58 |
5,961,820 |
|
16-Jan-15 |
Bonus 5:1 |
3,160,450 |
0 |
0 |
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TOTAL |
3,792,540 |
5.23 |
19,848,820 |
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