IPO Review - Discussion until listing


(suhagpatel) #22

Jaspal Bindra (JBCG Advisory services private limited) have purchased 77K shares @ Rs 65 in the month of November 2017. Company is offering shares @ 65-67 so he is invested at the same prices the share are offered.

Bindra is a former Asia Chief of Standard Chartered Bank.

Regards,
Suhag


(aerofire) #23

Total Bids
(One Point One Solutions Limited) As on 15-Dec-2017 17:00:00 IST
Total Issue Size 4742000
Total Bids Received 401642000
Total Bids Received at Cut-off Price 23752000
No. of times issue is subscribed in retail category 27.64
No. of times issue is subscribed 84.70.

Bid Details
(One Point One Solutions Limited) (Bid Details for ONEPOINT as on 15-Dec-2017 17:00:00 IST)
Category No. of shares bid for

  1. Qualified Institutional Buyers (QIBs) 1,89,38,000
    Foreign Institutional Investors (FIIs) 34,66,000
    Domestic Financial Institutions 37,30,000
    Mutual Funds 0
    Others 1,17,42,000
  2. Non Institutional Investors 31,71,78,000
    Corporates 3,52,50,000
    Individuals (Other than RIIs) 27,68,44,000
    Others 50,84,000
  3. Retail Individual Investors (RIIs) 6,55,26,000
    Cut Off 2,37,52,000
    Price Bids 4,17,74,000
    Total 40,16,42,000

(suraj jethwani) #24

I have studied this DRHP is some detail and would like to point out that for companies like these the future growth possibilities are very important.
Related to that , I came across an article this was published in end of March,2017 about 1Point1’s joint venture in China

In this alliance this company had a 51% (i.e. controlling) shareholding.
I would request the investors from this forum to add more details about this, It will help everyone to make a decision (post listing)…


(khushi) #25

Views invited on astron paper ipo


(Yogesh Sane) #26

Astron Paper & Board Mill Limited
Story
Astron Paper is a manufacturer of Kraft (brown) paper used in manufacturing of corrugated boxes. Unlike newsprint and writing and printing paper which use wood or bamboo as raw material, it uses waste paper as raw material sourced from UK and US. Company has a manufacturing capacity of 96,000 mtpa and production for FY 2017 was 63,371 mtpa. Company is planning to raise capacity to 129,000 mtpa and plans to raise production to 106,350 by FY2019. Company is planning for nearly 65% jump in production in 2 years. In comparison company has raised capacity by 25% and production by 20% in last 2 years.

Company’s competitors are Shree Ajit Paper and Pulp, Genus Paper and South India Paper Mills.
Brief History

Financials

image

Company has become profitable in last 3 years. Before that it was profitable at EBITDA level. EBITDA margins have remained stagnant at 13% while net margins have improved from 3% to 9%. Debtor days are higher than normal for a company making commodity products. This has caused CFO to lag net profits although cashflow has improved recently. ROE has steadily improved even though leverage has dropped because of rising margins. Lower interest costs coupled with lower taxes has resulted in higher net margins even though ebitda margins have remained stable at 13%.

Corporate Governance
Company is promoted by 44 year old Kirit Patel, 51 year old Ramakant Patel, 64 year old Karshanbhai Patel along with Asian Granito India Limited. Kirit Patel holds a Bachelor of Commerce degree from Gujarat University. Kirit Patel and Ramakant Patel has 20 year experience in paper industry.


Post issue promoter shareholding will drop to 43%.

Executive compensation is low.

Dividends – No dividends are declared in last 5 years.
Tax payments – Company has not paid taxes in last 5 years mainly because accelerated depreciation has resulted in taxable income to be negative.
Debt repayments – Company has borrowed money in every year except 2015.

IPO Details
Company is selling 1.4 Cr shares at 50 rs per share to raise 70 cr. Shares outstanding post IPO will be 4.65 Cr.

Objects of the issue
Out of the 70 Cr raised, company plans to use 23cr to set up 33,000 mtpa plant, 8 cr for repayment of debt, 24 Cr for working capital and remaining (15 Cr) for general corporate purposes.


Valuation
Company is being valued at a valuation of 233 Cr on a post issue basis. On an estimated FY 18 PAT of 15 Cr shares are offered at PE of 15 and on a post issue book value of 110 Cr, P/B ratio works out to be 2.1. Company is more than doubling book value from 45 Cr to 110 Cr.

Investment Rationale
Company has managed good growth in last few years and generates good profitability going by the high ROE generated in recent years. Company is planning to raise production 65% in next two years which provides good visibility. Demand for kraft paper is growing as user industries like e-commerce and FMCG packaging are growing. Since company uses waste paper as raw material, shortage of raw material is not an issue.

Key Risks

  1. Kraft paper prices are currently on a cyclical high.
  2. Company margins may drop in near future.
  3. Drop in rupee is likely to cause drop in gross margins as raw materials is imported. Company has reported flat gross margins in last 5 years.
  4. Debtor days are high.
  5. Promoter holdings will drop to a low of 43% post issue.
  6. Company has not paid taxes in last 5 years.

Disc: Applying for IPO


(aparab) #27

Agreed 100% IPOs are one of the best place to get bargain priced. Stocks . 2018 is going to be exciting year for IPO market given success of insurance IPOs and many others in 2017

Thanks Yogesh for staring this thread , we would love to contribute


(AmitContrarian) #28

Are you saying Merchant bankers and promoters work together to make sure general public should get benefited from an IPO ?

Not everyone is Narayana Murthy .


(Siddharth) #29

Hi Yogesh- This is a kraft paper manufacturer with 40cr of equity with total profits of 12cr in last 5 years and promotors are diluting 30% for 70cr.
If i may ask- how did you arrive at the 15cr PAT figure for FY18? H1 FY18 had PBT of close to 7cr while deferred tax benefit lead to PAT of 9.4cr vs PBT of 7cr. Even FY 17 PBT was 8.4cr while PAT was 9.9cr. Would you know till when do we get this -ve tax which is leading to increase of reported profits?
If i normalize for taxes- the issue is coming at closer to 20x PE. This seems too expensive for a commodity manufacturing business which currently is enjoying cyclical high margins.
Would be very interested to know your view on the risk/reward at the proposed valuations?


(Yogesh Sane) #30

Just my own ballpark estimate based on production, sales, margins and results for H1 of FY 18. PE is just a short cut method of valuation. I use a DCF valuation but a DCF model is not easy to communicate like a simple P/E or P/B ratio.


(arun10dec) #31

As par your DCF, at how much discount of your estimated Intrinsic Value it is available (IPO Cut off Price)


(Yogesh Sane) #32

Not much. about 10%. Most IPOs are aggressively priced. Valuation also depends on how long can company avoid paying taxes.


(Yogesh Sane) #33

On a second thought, my FY 18 estimates are a little optimistic if company can no longer defer taxes. In that case, normalized earnings for FY 18 could be close to 10-12 Cr instead of 15 Cr and PE works out to be 20-22 as you suggested. On a P/B of 2.1, it does not appear to be expensive but since most of the book value will be cash from IPO, it cannot be valued at 2 times. Rest of the business is being valued at a high multiple.
they are adding fixed assets so they can continue to defer taxes by using accelerated depreciation but from a valuation perspective, normalized post tax earnings should be used unless company is getting a tax holiday. So based that, issues does appear to be expensive with little or no margin of safety.


(Yogesh Sane) #34

Moksh Ornaments Ltd - IPO Preview
Story
Moksh Ornaments is a Mumbai based wholesaler of traditional basic jewelry like bangles, chains and mangalsutra. Company does not manufacture or design or retail jewelry but works with third party designers to design the jewelry, get those designs and samples approved by jewelers and then get those designs manufactured on a job work basis. Company has a factory in Bhiwandi for procurement, inspection and dispatch functions.Company works on a gross margin of 4% and a net margin on 1%.

Top 10 customers
image

Procurement Policy
Company is largely de-risked from gold price movement since it is sourcing gold under gold loan schemes of suppliers of raw material. Text from IPO prospectus.

We follow a procurement policy aimed at de-risking the business from gold price 
fluctuations by sourcing gold for our business operations under the gold loan
schemes from our suppliers. Under such arrangements, the price of gold
purchased is not fixed on procurement, but rather within the applicable credit
period, on the basis of prevailing gold rates on sale to customers, thereby 
minimizing any risk to us relating to gold price fluctuations between the time of our
procuring the raw material and selling the finished product to our customers.

There are no listed competitors in wholesale jewelry segment as all listed companies are either manufacturers or retailers.

Brief History

  • 2012- Incorporated. Took over businesses carried on by promoters Amrit J. Shah and Jawanmal M. Shah as a sole proprietor of M/s. Jineshwar Gold and M/s. Padmavati Jewels respectively.
  • 2014 – Additional capital infusion.
  • 2015 - Additional capital infusion.
  • 2017 – Converted to public limited company.

Financials
image

Sales have gone up 3x in 4 years while gross margins are steady at 4%. Net margins have gone up only recently as operating costs have stabilized so operating leverage is kicking in. Debtor days have remained low and total debt has remained stable even when sales have grown sharply. ROE is good at 31%. Drop in ROE in FY 15, and FY 16 is due to additional capital funding.

Corporate Governance
Company is promoted by 74 year old Jawanmal Shah and his 45 year old son Amrit Shah. Both have about 30 and 20 years of experience in jewelry respectively in the jewelry hub of Mumbai. Both own 40% of the company each and rest of the Shah family own the remaining 20%.

Promoter Salary is reasonable.

Dividends - Company has not declared any dividends during the last five financial years.
Tax Payments - Company is booking tax costs at full rate and actually paying those taxes too.
Debt Repayments – Company has repaid debt when additional equity capital was raised.

IPO Details
Company is selling 29.82 lakh shares at a price of 37 Rs. Number of share outstanding after the issue will be 107 Lakhs valuing the company at 40 Cr on a post issue basis.
image

Objects of the issue
Out of the 11 Cr to be raised from IPO, company will use 7.4 Cr for working capital, 3 Cr for repayment of debt and remaining 0.6 Cr for issue expenses.

Valuation
Company is asking for a valuation of 40 Cr on a post issue basis. Company is almost doubling book value from 13 Cr to 24 Cr. On an annualized PAT of 3.3 Cr for FY 2018, P/E works out to be 12 and P/B works out to be 1.7. Leverage will come down from 5.5 to 3.3.

Investment Rationale
Company has managed to grow sales 3x in last 4 years. Company’s customers are chain store jewelers. Jewelry business is going through a transformation where organized chain stores are taking market share from local jewelers. Company is helping these jewelers by outsourcing manufacturing function so jewelers can focus on retailing and brand building. Company mainly deals in traditional basic jewelry so obsolescence is minimized. Designs are approved in advance from customers and gold price risk mitigated by its procurement policy. Company has a relatively rigid return policy. Company has managed steady gross margin of 4% over last 4 years. With a net margin of 1%, company is not taking too much value from supply chain so it is likely to keep customers and grow business. Company has won repeat orders from key customers.

Key Risks

  1. Net margins have gone up only in last 1.5 years. This could turn out to be a pre IPO bump.
  2. Operating cost actually declined in FY 2017 while sales jumped 60%. This sounds unusual.
  3. Company is asking for a 70% premium to book value most of which will be cash. Valuation appears to be on the higher side.
  4. Company has no brand, factory, or organizational setup. This is still a father-son story with 8 employees. Execution and scaling risk is high.
  5. Customers could decide to in-source manufacturing and designing, rendering company’s business unviable.
  6. Company does not have any written contracts with customers. This is mainly a relationship business.
  7. Company works on wafer-thin margins.

Disc: Applying for IPO. Viewed invited especially negative.


(AmitContrarian) #35

Again same old pattern in SME IPO …
Thus sudden rise in top and bottom lines for FY 17 is surprising.


(Yogesh Sane) #36

Nifty SME Emerge Index which was constituted in Dec 2016 with a base value of 1000 is now trading at 1796. Index has gained 67% this year and almost 50% in last 3 months alone.

image
Source: NSE

SME stocks which were offered at reasonable valuations are now trading at high valuation like their peers on the main board.


(Sd) #37

Thanks @Yogesh_s for starting this thread.
Referring to your last post, cannot we invest in the SME Index itself…not finding any details on Google.


(AmitContrarian) #38

There is no SME index , That would be fun toss this idea to some fund house.


(Yogesh Sane) #39

As far as I know, there is no fund that tracks the SME index.

Unfortunately, NSE does not release the members of SME Emerge Index, only top 10 positions that make up about 50% of teh index is available.

image

You can get list of all stocks in NSE SME Emerge platform here

More info on index is here.

Companies in the index are quiet small and no fund will recover its costs tracking such small companies. Lot size is high too. So even if you were to build your own fund by buying every company in the index, you will need a large capital.


(Vinu56) #40

Insight required on Moksh Ornaments ?


(AmitContrarian) #41

Another SME IPO Rithwik Facility Management Services Ltd. (RFMS) - Same pattern sudden surge in bottom line just before IPO.

On performance front, RFMS has posted revenue/net profits of Rs. 21.61 cr. / Rs. 0.45 cr. (FY15), Rs. 23.90 cr. / Rs. 0.34 cr. (FY16) and Rs. 21.49 cr. / Rs. 0.64 cr. (FY17). Thus while its top line has remained almost static, its bottom line has shown surge in last fiscal, that is surprising.