Three penal de-listings could not stop Dharnendra group floating fourth company public!
Group flagship Dharnendra Ice-cream, which made its maiden public issue in 1989, was suspended by BSE for 13 years and was eventually delisted by the exchange in 2016. Group’s second and third public companies, Fly Up Fashions and Dharnendra Agro Food, too have vanished from the trading screen. But, that does stop the generation-next of the Dharnendra Gandhis from tapping the market through dubious means.
A seven-year-old company whose revenue is only Rs 10 Cr and bottom line is just Rs 54 lakh against a capital base of more than Rs 18 Cr is asking for an IPO premium of Rs 60 Cr! Still worse, market regulators, despite the group’s murky past, has allowed the promoter to sell at Rs 103 a share which was acquired by him at just Rs 10 in 2021. If promoters with questionable credentials can tap the market at ease, whose interest are the market regulators serving?
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PACE E-COMMERCE OFFER AT A GLANCE |
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| Offer Type | Fixed Price |
| Platform | SME |
| Fresh Issue | Rs 41.20 Cr (40 lakh equity shares) |
| Offer for Sale | Rs 25.33 Cr (24.59 lakh equity shares) |
| Face Value | Rs 10 |
| Price | Rs 103 |
| Mkt/Bid Lot | 1200 Nos. |
| Implied M-Cap | Rs 232 Cr |
| Implied Equity Cap | Rs 22.53 Cr |
| Free Float | 35% |
| Lead Manager | Interactive Financial |
| Registrar | Bigshare Services |
| Listing At | BSE SME |
| Issue Opening | 29-Sep-2022 |
| Issue Closing | 04-Oct-2022 |
The Offer
Pune-registered but Ahmedabad-headquartered Pace E-Commerce Ventures Ltd is entering the capital market with an initial public offer of Rs 66.53 Cr which translates into 64,59,600 equity shares. The offer consists of a fresh issue of Rs 41.20 Cr (40 lakh equity shares) from the company and an `Offer for Sale’ of Rs 25.33 Cr (24,59,600 equity shares) from existing shareholders. As much as 91% (22,41,600 shares) of the offer for sale is coming from the promoter himself. The offer is being made at a fixed price of Rs 103 for Rs 10 paid-up share.
Applicants should bid for a minimum lot of 1,200 shares and multiples thereof. Interactive Financial Services is acting as lead manager to the offer and Bigshare Services plays the role of registrar to the issue. The bidding opens on Thursday, September 29, 2022 and closes on Tuesday, October 4, 2022.
The company proposes to utilize the net proceeds (Rs 40.60 Cr) towards acquisition of plant & machinery (Rs 9.74 Cr), funding long term working capital requirements (Rs 20.86 Cr) and for general corporate purposes (Rs 10 Cr).
Lineage
Between 1989 and 1993, Ahmedabad-based Gandhi brothers Navinchandra, Dharmendra and Bhupendra floated five public issues under the banners Dharnendra Ice-cream, Fly Up Fashions and Dharnendra Agro Food. Few years after their public issues, not only they performed miserably on the operation front but also failed to comply with the listing guidelines which resulted in compulsory delisting of the shares by the stock exchange.
When the shares of flagship Dharnendra Ice-cream, which was subsequently renamed as Dharnendra Industries, were under suspension Dharmendra Gandhi’s son Shaival Gandhi, a resident of Ahmedabad, registered a company at Pune in the name and style of Pace Sports and Entertainment Private Ltd along with Parin Chandrakant Gala, each subscribing to 5000 shares of Rs 10.
For a long time, Pace Sports remained dormant as promoter Shaival Gandhi’s DIN was deactivated and was disqualified as Director under the provisions of the Companies Act for a period of five years. No sooner he was appointed as Additional Director in January 2020, the company increased its authorized capital from Rs 1 lakh to Rs 3 Cr and made a rights issue of Rs 2.33 Cr of which 82% (Rs 1.9 Cr) was subscribed by Shaival Gandhi.
On February 4, 2021 the authorized capital was increased to Rs 12.40 Cr. Eight days later it was further enhanced to Rs 19 Cr. On March 19, 2021 the company came out with a small rights issue of Rs 98 lakh out of which Rs 93 lakh (98%) was subscribed by Shaival Gandhi. On March 21, 2021 Rs 15 Cr equity was allotted to him at a premium of Rs 7.5 Cr but no amount was received. The allotment was made “as a consideration of the arrangement of brand of the licenses, franchise for various brands” by making a book entry of `intangible assets’ to the tune of Rs 22.50 Cr! And in July 2022, apparently in view of the IPO, the company converted Rs 2.21 Cr loan from the promoter into equity at a price of Rs 103 per share.
Having lost their credibility in the stock market, the Ahmedabad based group is now tapping the market through a Pune-registered company. According to the offer document, they have already planned to shift the registered office from Pune to Gujarat!
Key Management
The company is solely depending on the promoter and managing director, Shaival Gandhi (39), who reportedly holds a Masters Degree in International Securities, Investment & Banking from ICMA Centre, University of Reading, UK. He is also said to be a B.Sc in Information Technology and claims to have vast experience in sectors such as investment banking, food & beverages and real estate. Will this experience help him in selling consumer products and e-Commerce industry?
What’s disturbing is the promoter is already facing some serious charges. In 2009 there was a criminal case filed against his father Dharmendra Gandhi with regard to selling of a bungalow. The court passed an order in 2014 and Shaival Gandhi was added as an accused in the case.
In 2018, a case has been filed against him for dishonoring a cheque of Rs 5 Cr. He has been recently served with the summons for the same and the next date of hearing is scheduled for November 04, 2022.
In 2019 Vama Export Ltd filed a case against Shaival Gandhi for dishonoring a cheque of Rs 3 Cr. The father of Shaival Gandhi had purchased gold from Vama and in order to get the withdrawal of criminal case against the father, the cheque was given by the son! The next date of hearing of this case is also scheduled for November 4, 2022.
In 2018 Universal Ployer had filed a case against Shaival Gandhi, as director of Avante Garde Foods Private Ltd, for dishonouring a cheque of Rs 20 lakh. He has been recently served with the summons and the date of hearing is scheduled for December 12, 2022.
Stakeholders
Of the present equity of Rs 18.83 Cr, promoter Shaival Gandhi alone holds Rs 16.89 Cr. Of this, as much as Rs 15 Cr was allotted through a book entry (without receiving any cash). Hence, the actual average cost of holding of the promoter is negligible. As he is going to collect a hefty premium of over Rs 20 Cr from the offer for sale, the actual cost of his residual holding (65%) will be negative.
Business Track
The company boasts of starting in 2015 as a business that would give the kids/young consumers and sports enthusiasts in India access to International Football Clubs Merchandise and International Sports Brands apparels and Sports Goods. It claims to have initially imported and distributed branded international sports apparels and subsequently extended to various branded merchandise and accessories. Thereafter it claims to have acquired manufacturing and distribution licenses of some of the popular and biggest brands in the Kids Entertainment Industry.
The company claims to have established its own e-commerce portal, www.cotandcandy.com offering a wide range of products and also started catering to number of request for `on demand printing’ and manufacturing of products for both B2C and B2B Customers. It claims to have now expanded its product categories to kids sports, kids fashion, kids furniture and home textiles. Also, it claims to have exclusive manufacturing and distribution rights for world renowned kids entertainment brands and licenses of internationally reputed kids brand.
Financial Track
Though the seven year old company makes tall claims about its business, its financial performance so far is far from convincing. Until fiscal 2021, its top line was worth not even Rs 2 Cr. On the eve of the IPO, it registered Rs 10.50 Cr sales and netted a profit of Rs 54 lakh on a capital base of over Rs 18 Cr. During the last three years the company’s operating cash flow has remained negative. The IPO is worth more than Rs 66 Cr but, the company hardly has any tangible asset in its books.
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Pace e-Commerce Financials (in Cr) |
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| Year Ended |
Mar-22 |
Mar-21 |
Mar-20 |
| Revenue |
10.50 |
1.70 |
1.49 |
| Operating Profit |
0.92 |
0.31 |
0.06 |
| OPM% |
8.80 |
18.20 |
3.80 |
| Other Income |
0.05 |
0.02 |
0.01 |
| EBIDTA |
0.97 |
0.33 |
0.07 |
| EBIDTA % |
9.20 |
19.00 |
4.60 |
| Interest |
0.22 |
0.22 |
0.05 |
| Depreciation |
0.02 |
0.01 |
0.01 |
| Tax |
0.20 |
0.03 |
0.00 |
| Net Profit |
0.54 |
0.07 |
0.00 |
| Equity (Implied) |
22.53 |
18.32 |
0.01 |
| Reserves (Implied) |
47.16 |
7.63 |
0.06 |
| Borrowing |
3.62 |
0.97 |
1.21 |
| Assets ( mainly Intangibles) |
22.60 |
22.50 |
0.00 |
| Promoter Stake % |
65.00 |
91.12 |
100.00 |
Valuation
For a company which is yet to find a credible bottom line and the promoter whose credibility is highly questionable, the price of Rs 103 for a Rs 10 paid up share is too steep to hold long. What’s more deplorable is, despite the terrible past of the promoter group, the regulators have allowed the promoter to encash a part of his holding within two years of allotment and too at a price which is several times more than his cost.
Concerns
- The company’s restated financial statements have been prepared and signed by the Peer Review Chartered Accountants who are not Statutory Auditors as required under the provisions of ICDR.
- One of the objects of the issue is to acquire plant and machinery worth Rs 9.74 Cr. Nevertheless, the orders for the plant and machinery are yet to be placed.
- The company’s main business activity is based on the use of design, patent and brand of internationally well reputed kids brands or companies. However, the Agreements with the reputed brands/companies are not yet executed.