IPO Size: Rs. 346 cr
- 70% of issue is offer for sale (OFS) by the Promoter (97% holding to fall to 72%)
- 30% or Rs.103 cr is fresh issue for investment in NBFC subsidiary, lending for commodities trading.
Price band: Rs. 256-270 per share
M cap: Rs. 1,354 cr, implying 26% dilution
- Allocation of only up to 10% to QIB, minimum 30% to HNI and minimum 60% to retail category
IPO Date: Mon 12th Dec to Thu 15th Dec 2022, Listing Fri 23rd Dec 2022
Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.
Top 7 Reasons to Stay Away:
(not highlighting more to save time at both ends!)
- De-growth: Operating Income dropped 23% YoY to Rs. 120 cr in FY22, from Rs. 155 cr in FY21, with lending business nearly halving YoY to Rs. 32 cr. PBT before one-off shrunk 20% YoY to Rs. 66 cr in FY22.
- Electoral bonds worth Rs. 34 cr and Rs. 29 cr purchased by the company in FY21 and FY19 respectively. On FY21 reported PBT of Rs. 49 cr, this is 40% of PBT before bond purchase. Company calls this a ‘business decision’, but both, nature and quantum of transaction raises eyebrows.
- Of total borrowing of Rs. 77 cr, as of 31.8.22, Rs. 50 cr is from privately-placed market linked secured NCDs, at an annualized interest rates as high as 13.7%S-22.8%. The interest rates are linked to equity/commodity index movement, making them high risk, as interest cap is 75% in some cases. Also, company’s borrowings are secured but lending is unsecured.
- No wonder then, its average RoCE for FY20-22 was just 10%, which is not only low on absolute basis but also on relative basis - peers Edelweiss, Geojit, Choice’s RoCE is 22%+, implying gross sub-optimal utilization of capital by the financial company.
- Concentrated customers – 3/4th business of lending NBFC arm comes from top 10 customers, while 90% of agency revenue (brokerage business) is contributed by top 10 customers, highlighting very limited customer base.
- Business Risks (i) Rs. 119 cr corporate guarantee given by subsidiary includes those for promoter group companies, which can be both a corporate governance and liquidity issue (ii) commodities derivatives broking business has received SEBI notice for cancellation of registration, which is currently sub-judice.
- Half of FY22’s gross operating income of Rs. 120 cr came from treasure operations, which deserve mid-single digit PE multiple. On 5MFY23 annualised PAT, company’s asking PE is 18x, which is exorbitant.
Abans has a forex payments license from UK regulator, but that business (Rs. 31 lakh invested) is yet to be launched. It would be immature to get lured by this future opportunity, as immense global competition already exists.