Claim of ‘no comparable peer’ exposes lead managers’ ignorance!
Issuing shares first at par and then collecting premium from promoters on select shares in order to justify the IPO price makes mockery of issue pricing.
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OFFER AT A GLANCE |
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|
Name |
Vaksons Automobiles Ltd |
|
Offer Amount |
Rs 6.24 cr |
|
Offer Quantity |
24 lakh shares of Rs 10 each |
|
Offer on Total Equity |
36.5% |
|
Post-issue Promo stake |
55.3% |
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Post-IPO Capital |
Rs 6.58 cr |
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Offer Price |
Rs 26 |
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Application Quantity |
4000 & Multiples of 4000 |
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Offer Opens |
September 28, 2015 |
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Offer Closes |
October 1, 2015 |
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Listing |
SME Platform of BSE |
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Rating |
Nil |
|
Lead Managers |
BCB Brokerage & Aryaman Fin |
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Market Maker |
Aryaman Capital |
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Underwriters |
Aryaman Fin (75%), BCB Brokerage (16%) & Aryaman Cap (5%) |
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Registrar |
Cameo Corporate Services |
The Offer
The present offer is a fresh issue of 24 lakh shares of Rs 10 each at a price of Rs 26 a piece aggregating to Rs 6.24 cr. The IPO amounts to 36.5% of the post-issue capital of the company (Rs 6.58 cr). The offer is jointly managed by BCB Brokerage and Aryaman Financial Services who have underwritten 16% and 79% respectively. Aryaman Capital Markets, who is acting as market maker, has underwritten the balance 5%. Investors need to apply minimum 4000 equity shares. The shares are to be listed on the SME platform of BSE.
Issue Object
The company intends to spend the issue proceeds of Rs 5.7 cr (net of issue expenses of Rs 54 lakh) on various capital expenditure programmes. It proposes to set up a vehicle service centre at Sonepat (Haryana) at a cost of Rs 51 lakh. About Rs 3 cr is earmarked for long term working capital. It also proposes to invest Rs 1.83 cr in subsidiary company – Vaksons Metaplast Pvt Ltd which is in the business of trading various metal and plastic products used in the automobile industry. About Rs 35 lakh is to be spent on stamp duty for the land acquired from the promoter group for a consideration of Rs 4.5 cr.
Lineage
The New Delhi-registered Vaksons Automobiles Ltd (VAL) has been promoted by Atul Kumar Jain and his spouse Vandana Jain. Atul Jain (47), a commerce graduate, reportedly started his career with his family business of brick kilns, trading of coal and mining of silica sand. The promoters had also engaged in event management and hospitality business which was subsequently closed down. In 2003, the Jains floated VAL to undertake a dealership of Bajaj Tempo which became Force Motors subsequently. The promoters have three closely companies. Fabino Life Sciences Ltd is said to be engaged in pharmaceutical business, NBL Buildcon Pvt Ltd is engaged in real estate development and Keshav Health Foods Pvt Ltd is reportedly into trading of food products. However, none of the group companies has a credible financial track record to speak about.
Company Track
Having dealt in commercial vehicle sales for more than 7 years, VAL set up a new showroom in 2011 at Gohana in Sonepat district of Haryana. The company added one more showroom at Panipat in 2012. The company started trading spare parts since 2014. VAL has ISO 9001 certification for Sales, Services and Spares.
As regards VAL’s financial track, the company has a decent top line for its SME standard. However the attraction stops there itself. The company’s equity capital has leapt from Rs 17.53 lakh in FY14 to 417 53 lakh in FY15 and the promoters have brought in Rs 210 lakh as share premium during last fiscal. Yet, its bottom line has grown to only Rs 18.13 lakh. In fact, from a positive cash flow last year, the company’s net operating cash flow turned negative this year. In three out of last four years, the company’s operations have resulted in negative cash flow. In FY15, whereas sales increased by Rs 2 cr, receivables went up by Rs 1 cr.
VAL’s net block of assets leapt from less than Rs 50 lakh in FY14 to Rs 5.93 lakh in FY15 which was largely due to the acquisition of land worth Rs 4.5 cr in Dec 2014 from the promoter group (Shanta Jain) for construction of a new service center. Currently VAL operates three showrooms and one service centre – all in Haryana. Recently the company acquired a land parcel admeasuring 1033 sq yards at Sonepat near its existing service centre. VAL expects to achieve significant growth in the business of vehicle servicing. The company has also planned to expand its trading of auto parts under its subsidiary.
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FINANCIAL PERFORMANCE OF VAKSONS AUTOMOBILES |
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(Rs.lakh) |
Mar-15 |
Mar-14 |
Mar-13 |
Mar-12 |
Mar-11 |
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Revenue |
1625 |
1421 |
1205 |
1230 |
730 |
|
Oper Margin (%) |
5.2 |
3.4 |
1.9 |
1.4 |
1.5 |
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Net Profit |
18 |
11 |
3 |
1 |
2 |
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Net Oper. Cash Flow |
-118 |
52 |
-43 |
-17 |
11 |
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Trade Receivables |
180 |
64 |
39 |
60 |
31 |
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Equity Capital |
418 |
18 |
18 |
18 |
18 |
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Reserves |
242 |
14 |
3 |
0 |
-2 |
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Net Block |
593 |
49 |
17 |
6 |
6 |
|
Borrowings |
318 |
213 |
181 |
105 |
75 |
Valuation
Though more than a decade old, VAL’s equity capital was less than Rs 18 lakh and reserves amounted to only Rs 14 lakh until November 2014. This would not have enabled the company to ask for any premium for its IPO. In December 2014 the company made a ‘rights issue’ of 40 lakh shares at different tranches of which only 13.15 lakh shares (that is a portion of promoters’ allotment) were charged a premium of Rs 16 per share. Of the pre-IPO equity of Rs 4.18 cr, the promoters and their associates hold 36.34 lakh shares (87%) at an average cost of Rs 15.79 a piece while the non-promoter shareholders have 5.41 lakh shares (13%) at a cost of Rs 10 each.
At the IPO price of Rs 26, VAL is asking for a market cap of Rs 17 cr which discounts the company’s bottom line more than 94 times. The promoters and the lead managers expect us to believe that none of the listed companies is comparable with VAL based on its size and business. But, the fact is, the listed domain has already seen a couple of players engaged in auto dealership. While the first listed Maruti dealer, Mumbai-based Sai Service Station, has already got delisted, Competent Automobiles, another listed dealer of Maruti, based in New Delhi, is currently priced less than 8 times its earnings into a market cap of Rs 91 cr.
For its operational size, Competent has a relatively low equity base (Rs 6.15 cr) as against VAL’s Rs 6.58 cr. Competent’s reserves amount to over Rs 85 cr as compared to VAL’s Rs 2.42 cr. Competent has a net block of Rs 53 cr, revenue of Rs 924 cr and net profit of Rs 11.61 cr. Compared to these, VAL’s net block is hardly Rs 6 cr, reserves are worth only Rs 2.42 cr and revenue is Rs 16.21 cr. Of course, VAL’s operating margin is higher than Competent. However, if the negative cash flow is any indication, the higher margin is only on paper!
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HOW VAKSONS COMPARES WITH AUTO DEALER-PEER |
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CO_NAME |
MCAP |
EQ |
RES |
NB |
REV |
NP |
P/E |
OPM |
YLD |
PRICE |
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|
(Rs Cr) |
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(%) |
(Rs) |
||||||
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Competent |
90.84 |
6.15 |
85.03 |
53.12 |
924.34 |
11.61 |
7.8 |
2.8 |
0.7 |
148 |
|
Vaksons |
17.10 |
6.58 |
2.42 |
5.93 |
16.21 |
0.18 |
94.3 |
5.2 |
0.0 |
26 |
Managers’ Track
Unlike other SMEs, VAL has hired the services of two investment bankers namely BCB Brokerage and Aryaman Financial Services for managing a modest Rs 6.24 cr IPO. While BCB has managed just two SME IPOs till date, Aryaman has handled thirteen SME IPOs. Incidentally, BCB group IPO has been lead-managed by Aryaman Financial and Aryaman group IPO has been patronized by BCB Brokerage.
Coming to the performance of BCB Brokerage-handled IPOs, the record is far from satisfactory. The first SME IPO, Aryaman Capital Markets, is hardly traded. Of the 233 days that the scrip is listed, only 29 days (12%) it has found quotes. This scrip was last traded more than a month ago. The second IPO managed by BCB, Amson Apparels, too is not regularly traded. Amson was last traded about two weeks ago at 19% discount over its offer price.
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BCB BROKERAGE-MANGED SME IPOs |
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ISSUER |
IPO |
IPO |
Cur. |
Gain |
Listed |
Traded |
Liqid |
LAST |
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|
Date |
Price |
Price |
% |
Days |
Days |
% |
Trade |
|
Aryaman Capital |
25-Sep-14 |
12 |
13.80 |
15.0 |
233 |
29 |
12 |
25-Aug-15 |
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Amson Apparels |
16-Dec-14 |
10 |
8.08 |
-19.2 |
181 |
94 |
52 |
16-Sep-15 |
The track record of Aryaman-managed SME IPOs too is far from impressive. Of the 13 IPOs handled by Aryaman, none has found quote more than 53% of the days listed. SRG Housing Finance has appreciated 440% in three years but, its group company SRG Securities Finance is languishing below issue price even after two years. Suyog Telematics was last traded 384% over the offer price but, the scrip has been traded only one out of four days. IPOs like Stellar Capital, India Finsec and Dhanuka Commercial not only inflicted capital losses but also have very poor liquidity.
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ARYAMAN FINANCIAL-MANAGED SME IPOs |
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ISSUER |
IPO |
IPO |
Cur. |
Gain |
Listed |
Traded |
Liqid |
Last |
|
|
Date |
Price |
Price |
% |
Days |
Days |
% |
Trade |
|
BCB Finance |
23-Feb-12 |
25 |
27.00 |
8 |
875 |
174 |
20 |
20-Aug-15 |
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Sangam Advisors |
24-Jul-12 |
14 |
15.50 |
11 |
771 |
124 |
16 |
24-Sep-15 |
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Jupiter Infomedia |
30-Jul-12 |
10 |
30.75 |
208 |
767 |
299 |
39 |
24-Sep-15 |
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SRG Housing Fin |
22-Aug-12 |
14 |
77.15 |
440 |
750 |
399 |
53 |
24-Sep-15 |
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India Finsec |
24-May-13 |
10 |
5.32 |
-47 |
565 |
83 |
15 |
22-Sep-15 |
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Kushal Tradelink |
14-Aug-13 |
7 |
33.20 |
374 |
506 |
260 |
51 |
24-Sep-15 |
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SRG Securities Fin |
7-Oct-13 |
20 |
17.00 |
-15 |
470 |
120 |
26 |
17-Aug-15 |
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Stellar Capital |
15-Oct-13 |
20 |
5.68 |
-72 |
467 |
66 |
14 |
22-Sep-15 |
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Suyog Telematics |
30-Dec-13 |
25 |
121.00 |
384 |
411 |
105 |
26 |
24-Sep-15 |
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Karnimata Cold |
25-Feb-14 |
20 |
18.50 |
-8 |
375 |
62 |
17 |
9-Sep-15 |
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Dhanuka Commer |
22-May-14 |
10 |
6.75 |
-33 |
319 |
83 |
26 |
10-Sep-15 |
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Vishal Fabrics |
31-Jul-14 |
45 |
135.00 |
200 |
271 |
64 |
24 |
24-Sep-15 |
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AGI Infra |
10-Mar-15 |
54 |
115.10 |
113 |
125 |
66 |
53 |
24-Sep-15 |