Regulators need to do some research!
Whereas an employee-turned-promoter, who holds just one share (of Rs 10) discloses the names of his extended family members in the offer document, the background of the person who ultimately controls the company with an indirect brute majority stake is not revealed. If this is the quality of disclosure made by a company which is raising Rs 10 cr through a `Follow-on Public Offer’, surely, our capital market regulators require to do research while vetting the offer documents.
|
OFFER AT A GLANCE |
|
|
Name |
Majestic Research Services & Solutions Ltd |
|
Offer Amount |
Rs 10 cr |
|
Offer Quantity |
8.77 to 9.43 lakh shares of Rs 10 each |
|
Offer on Total Equity |
17.55% to 18.62% |
|
Post-FPO Promo stake |
59.26% to 60.05% |
|
Post-FPO Capital |
Rs 5 cr |
|
Offer Price |
Rs 106 to Rs 114 |
|
Application Quantity |
1,200 & Multiples of 1,200 |
|
Offer Opens |
November 28, 2016 |
|
Offer Closes |
December 5, 2016 |
|
Share Allotment |
December 8, 2016 |
|
Refund Process |
December 8, 2016 |
|
Demat Credit |
December 9, 2016 |
|
Share Trading |
December 14, 2016 |
|
Listing |
SME Platform of BSE |
|
Lead Manager |
Pantomath Capital Advisors |
|
Market Maker |
Pantomath Stock Brokers |
|
Syndicate Members |
Choice Equity Broking / Nirmal Bang Securities |
|
Registrar |
Bigshare Services |
The Offer
In June last year the same company made an initial public offer (IPO) of 11.2 lakh shares of Rs. 10 each at a fixed price of Rs.12.75 per piece on the SME platform and raised a tiny amount of Rs 1.43 cr. The IPO amounted to 27.17% of the post-issue equity. The company received 149 applications of which 70 got allotment. The shares were listed on July 16, 2015 with a modest gain at Rs14 and in just one year the price rose to Rs 140! Having gained more than 1000% over the IPO price, the company is now making a follow-on public offer (FPO) of Rs 10 cr through the book building route with a price band of Rs 106-114. Post-FPO, the company’s equity capital will increase from Rs 4.12 cr to about Rs 5 cr of which the promoters would hold around 60%. The book running lead manager (BRLM) of the offer, Pantomath Capital Advisors, has underwritten the entire issue. While Choice Equity Broking and Nirmal Bang Securities are acting as syndicate members, an affiliate of the investment banker, Pantomath Stock Brokers, has been appointed as market maker. Investors have to apply for a minimum of 1200 shares. The company’s shares are already listed on the SME platform of BSE.
Issue Object
Last year, of the IPO amount of Rs 1.43 cr, the company earmarked Rs 80 lakh (56%) for working capital, Rs 43 lakh (30%) for issue expenses and the balance Rs 20 lakh (14%) was to be spent on procurement of new technology. Of the FPO proceeds of Rs 10 cr, about 47% (Rs 4.7 cr) is kept for working capital, 26% (Rs 2.6 cr) is proposed to be spent on new corporate office in Mumbai which is going to cost Rs 6.94 cr. The balance 27% (Rs 2.7 cr) net of issue expenses is earmarked for `general corporate purpose. Nonetheless, the Rs 16 cr-plus funding proposal has not been appraised by any bank or independent agency.
Promoters & Background
The issuer-company, Majestic Research Services and Solutions Ltd (MRSSL), was incorporated in May 2012. As per the offer document, the Bengaluru-registered MRSSL is a subsidiary of Majestic Market Research Support Services Ltd (MMRSSL) which is based in Mumbai. According to the offer document Sandip Bhatia is the promoter of MMRSSL, which was incorporated in November 2003 and housed at 160-A Prem Chaya Building, LBS Marg, Kurla West, Mumbai – 400070. As per the RHP, there was a change in control of MMRSSL from Epicentre Research Technologies Bangalore (P) Ltd (ERTB) to Sandip Bhatia on June 20, 2013 as the former gifted 749,994 equity shares (99.99%) of MMRSSL to the latter. Who were the promoters of ERTB and why a corporate entity should gift a controlling stake to an individual are not known.
Coming to the individual promoters of MRSSL, Sarang Jayant Panchal (55) holds just one share in the company and has been the managing director of the company since June 13, 2014. Prior to joining MRSSL, he was reportedly associated with Procter & Gamble, Dun & Bradstreet, Nilsen, etc., having more than 25 years of experience in the field of alternative construction, strategy, consulting and e-commerce. The other promoter, Rajendra Kumar Sharma (43), Whole-time Director and Chief Financial Officer of MRSSL too joined only on June 13, 2014. Interestingly, prior to joining MRSSL, he was an employee of MMRSSL – parent company of MRSSL!
Interestingly, when MRSSL was incorporated in 2012, Sandip Bhatia and Naina Krishna Murthy were the signatories to the Memorandum. Subsequently Sandip Bhatia’s shares were transferred to Rajendra Kumar and Naina’s shares went to five people including Rajendra Kumar and Sarang Panchal. Sandip Bhatia resigned from the company in July 2013 that is a month after Sarang Panchal and Rajendra Kumar were inducted.
In January 2015 MRSSL entered into an agreement with Mukund Tripathi and Deepa Tripathi for purchase of 7,000 shares comprising 70% of holding of the Delhi-registered Emtee Research and Consultants (P) Ltd (ERCPL) incorporated in 2014. Of ERCPL’s capital of Rs 1 lakh, as much as 70% (7000 shares) was held by MRSSL and Tripathis collectively held the balance 30% or 3000 shares. Early this year, MRSSL bought out the stake from Tripathis to become the sole owner and ERCPL’s name was changed to Atrevido Research and Consultants (P) Ltd (ARCPL). Currently, Rajendra Kumar Sharma and Sarang Panchal are directors of ARCPL.
There is another company in MRSSL’s fold namely, Scent Analysis Majestic (P) Ltd (SAMPL). Registered in October 2014 in Mumbai with a similar capital of Rs 1 lakh, SAMPL is jointly owned by MRSSL and Analysis Scent Company International Gmbh with an equal stake of 50%. At the time of MRSSL’s IPO last year Sandip Bhatia and Rajendra Kumar Sharma were the directors of SAMPL. However, the FPO offer document presents Sagar Kumar Bait and Bijaya Kumar Barik as directors. Incidentally, the registered office SAMPL is situated at the same address of Sandip Bhatia’s MMRSSL.
According to the investment banker, both the public company (MRSSL) and its parent (MMRSSL) are engaged in similar line of business. Whereas the parent company caters to overseas clients, the public company addresses domestic clients. Why run two companies for same business? Why the person who has the ultimate control should resign from the public company and put forward his former employee as a promoter? How come a professional who was transferred just one share is called a promoter? These questions surely raise serious doubts about the credibility of the management.
Financial Track
Before MRSSL made the IPO at Rs 12.75 the company’s revenue was only Rs 2.26 cr on which it netted a profit of Rs13 lakh. It had an operating margin of 10.6%, EPS stood at 45 paise and book value was worth Rs 10.49 per share. In the next two years, the company’s financials have dramatically improved. Revenue has leapt to over Rs 11 cr in fiscal 2016, OPM has vaulted to 26.7% and EPS has surged to Rs 4.56 though the company is yet to join the dividend list.
|
MAJESTIC RESEARCH FINANCIAL PERFORMANCE |
||||
|
YEAR ENDED |
Mar-16 |
Mar-15 |
Mar-14 |
Mar-13 |
|
REVENUE |
1,117 |
553 |
226 |
48 |
|
OTHER INCOME |
15 |
0 |
0 |
0 |
|
EBIDTA |
313 |
113 |
24 |
2 |
|
OPM% |
26.7 |
20.5 |
10.6 |
4.3 |
|
INTEREST |
14 |
9 |
0 |
0 |
|
DEPRECIATION |
19 |
28 |
4 |
0 |
|
PRE-TAX PROFIT |
280 |
76 |
20 |
2 |
|
TAX |
91 |
24 |
5 |
1 |
|
NET PROFIT |
188 |
52 |
13 |
1 |
|
EQUITY |
412 |
300 |
300 |
75 |
|
RESERVES |
255 |
67 |
15 |
1 |
|
EARNINGS PER SHARE |
4.56 |
1.72 |
0.45 |
0.19 |
|
BOOK VALUE PER SHARE |
16.18 |
12.22 |
10.49 |
10.19 |
Valuation & Perception
MRSSL has fixed a price band of Rs 106-114 which discounts the company’s fiscal 2016 earnings 23 to 25 times and net worth 6.6 to 7 times. For the quantum of growth that the company has achieved in last couple of years this discounting may look reasonable. However, the contrasting performance of the parent and subsidiary engaged in similar line of business is intriguing. Whereas the public company’s top line has grown exponentially in last three years, from Rs 48 lakh to Rs 11.17 cr, the parent’s turnover has grown less than Rs 2 cr in three years. Also, the parent company’s net margin has more or less remained static at around 3% in last four years while the public company’s net profitability has shot up from 2.9% to 16.9%! Will MRSSL maintain the growth tempo after the high-priced FPO?
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MMRSSL PERFORMANCE (Rs Lakh) |
|||||
|
YEAR |
2015 |
2014 |
2013 |
2012 |
2011 |
|
REVENUE |
1462 |
1340 |
1329 |
1283 |
1247 |
|
NET PROFIT |
44 |
35 |
36 |
39 |
45 |
|
NP MARGIN % |
3.0 |
2.6 |
2.7 |
3.0 |
3.6 |
|
MRSSL PERFORMANCE (Rs Lakh) |
|||||
|
YEAR |
2015-16 |
2014-15 |
2013-14 |
2012-13 |
2011-12 |
|
REVENUE |
1,117 |
553 |
226 |
48 |
0 |
|
NET PROFIT |
188 |
52 |
13 |
1 |
0 |
|
NP MARGIN % |
16.9 |
9.3 |
5.9 |
2.9 |
0 |
Concern
There is a conflict of interest between the public company and the promoter company as these entities do not have any non–compete agreements in place amongst themselves. Besides the secrecy shrouded around the promoters, MRSSL has also failed on the corporate governance front. There has been delay in Service Tax remittance and ROC filings. Many a key personnel left the company between February 2014 and September 2015.
Manager’s Track
The same investment banker who managed MRSSL’s small IPO in 2015, Pantomath Capital Advisors, is managing the FPO. Though in terms of market return, Pantomath-associated IPOs have a decent record with an overall return of 64% liquidity is still a cause for concern. On an average, Pantomath’s IPOs have been traded only 50% of the days. In the case of MRSSL, the record is still worse. Even though, the scrip has appreciated more than 1015%, it was hardly traded 40% of the days. Moreover, despite a commendable growth in last two years, it has not attracted many investors. At the end of September 2016, it had a shareholder base of only 105 which is far less than the number of applications that the company received at the time of the IPO. In other words, while the market maker has enabled the scrip to scale dizzy heights he has not been successful in attracting many new investors to MRSSL’s counter.
| PERFORMANCE OF PANTOMATH CAPITAL-MANAGED IPOs | |||||||
|
SME IPO |
IPO |
IPO AMT |
CURNT |
GAIN |
LIST |
TRADE |
LIQUID |
|
|
DATE |
(Rs Cr) |
VALUE |
% |
DAYS |
DAYS |
% |
|
AGRO PHOS INDIA |
27-Oct-16 |
12.94 |
12.26 |
-5.2 |
8 |
8 |
100 |
|
BINDAL EXPORTS |
30-Sep-16 |
2.00 |
2.00 |
0.3 |
29 |
8 |
28 |
|
DRA CONSULT |
30-Sep-16 |
2.96 |
7.70 |
160.0 |
31 |
22 |
71 |
|
GRETEX INDUST |
30-Sep-16 |
3.96 |
3.72 |
-6.0 |
30 |
5 |
17 |
|
MEWAR HI-TECH |
30-Sep-16 |
2.34 |
1.70 |
-27.3 |
29 |
13 |
45 |
|
SAKAR HEALTH |
30-Sep-16 |
14.81 |
14.81 |
0.0 |
30 |
21 |
70 |
|
SHASHIJIT INFRA |
30-Sep-16 |
3.49 |
3.49 |
0.0 |
29 |
13 |
45 |
|
NANDANI CREATION |
28-Sep-16 |
4.04 |
4.71 |
16.6 |
32 |
22 |
69 |
|
NARAYANI STEELS |
1-Sep-16 |
11.52 |
10.01 |
-13.1 |
50 |
20 |
40 |
|
SPRAYKING AGRO |
31-Aug-16 |
1.86 |
1.88 |
0.7 |
50 |
17 |
34 |
|
SHIVA GRANITO EXP |
23-Aug-16 |
5.04 |
4.54 |
-10.0 |
55 |
22 |
40 |
|
COMMERCIAL SYN |
30-Jun-16 |
7.66 |
15.34 |
100.2 |
91 |
75 |
82 |
|
TITAANIUM TEN |
30-Jun-16 |
2.72 |
3.00 |
10.0 |
91 |
22 |
24 |
|
YASH CHEMEX |
7-Jun-16 |
2.51 |
2.78 |
10.7 |
108 |
78 |
72 |
|
LANCER CONTAIN |
31-Mar-16 |
1.85 |
3.87 |
109.2 |
153 |
77 |
50 |
|
SYSCO INDUST |
31-Mar-16 |
2.17 |
4.77 |
120.0 |
153 |
101 |
66 |
|
RUBY CABLES |
30-Mar-16 |
10.01 |
6.01 |
-39.9 |
153 |
27 |
18 |
|
VIDLI RESTAUR |
3-Feb-16 |
1.31 |
20.10 |
1434.0 |
192 |
83 |
43 |
|
PATDIAM JEWEL |
30-Sep-15 |
5.00 |
14.14 |
182.6 |
273 |
70 |
26 |
|
SRI KRISHNA CONS |
10-Sep-15 |
11.34 |
8.04 |
-29.1 |
283 |
63 |
22 |
|
MANGALAM SEEDS |
29-Jul-15 |
5.70 |
12.88 |
126.0 |
317 |
232 |
73 |
|
M.D. INDUCTO CAST |
30-Jun-15 |
17.24 |
26.94 |
56.3 |
336 |
154 |
46 |
|
MAJESTIC RESEARCH |
30-Jun-15 |
1.46 |
16.24 |
1015.4 |
336 |
133 |
40 |
|
JIYA ECO-PRODUCTS |
29-Jun-15 |
4.58 |
12.88 |
181.1 |
336 |
234 |
70 |
|
AMBITION MICA |
23-Jun-15 |
4.30 |
12.52 |
191.5 |
338 |
188 |
56 |
|
FILTRA CONSULT |
24-Mar-15 |
3.11 |
4.33 |
39.2 |
401 |
106 |
26 |
|
SUPREME (INDIA) |
16-Mar-15 |
7.87 |
8.72 |
10.8 |
407 |
390 |
96 |
|
JET INFRAVENT |
30-Oct-14 |
4.50 |
4.96 |
10.3 |
496 |
157 |
32 |
|
MOMAI APPARELS |
25-Sep-14 |
30.00 |
46.64 |
55.4 |
519 |
459 |
88 |
|
ULTRACAB (INDIA) |
15-Sep-14 |
7.97 |
39.85 |
400.0 |
524 |
331 |
63 |
|
WOMEN’S NEXT |
28-Mar-14 |
6.50 |
4.90 |
-24.7 |
640 |
323 |
50 |
|
SIDDHI VINAYAK |
18-Feb-14 |
6.86 |
8.50 |
24.0 |
668 |
117 |
18 |
|
COMPOSITE OF 32 IPOs |
209.61 |
344.22 |
64.2 |
7188 |
3591 |
50 |
|