Allied Computers International (Asia) is entering the capital market on 7th September, 2007 with a public issue of 50 lakh equity shares of Rs.10 each at a premium of Rs.2 per share. The share is listing only on Bombay Stock Exchange.
While analyzing the prospectus, one cannot help but think of the olden days of 1994, when such companies, used to rampantly tap the capital market. The company does not have any robust business model, has a very high equity base with very low profitability. Yet an IPO is structured, that too, for a tiny amount of Rs.6 crore. This maybe a small amount for the capital market but it certainly seems quiet high for the company, given its fundamentals.
The company is into assembling and marketing of laptop computers by importing it from Taiwan, China and Singapore as also sourcing locally from other various stockists laptops, computer components, peripherals, screen, hard disk etc. For FY 07, total income of the company was at Rs.39.88 crores with PBT of Rs.1.35 crores. EPS is meager at 76 paise. Of sales of Rs.38.13 crores, service receipts are every low at Rs.1.48 crores. The total PAT in last 5 years was at Rs.1.70 crores on total income of Rs.97.42 crores. Really pathetic!. The net worth as at 31-03-07 was at Rs.13.08 crores with PAT of Rs.89 lakh, a return of less than 7%. Even bank deposits would have given better post tax return. And this has been the profitability trend for the past five years and this is expected to entice investors to put money in the company!
The company is now setting up a Global Laptop, TFT and equipment service centre at Vasai on an area of 15,000 sq. ft. The total cost of project is Rs.7.78 crores, which is partly financed by term loan of Rs.1.78 crore and Rs.6 crore from proposed issue.
Post issue equity would rise to Rs.19 crores which would be a big dampner and EPS may not exceed Re.1 in FY 09, post new project. In such a situation, share will not have any investor interest and may even rule below Rs.10. Infact, the company does not qualify for a public issue and such issues must be discouraged. Surely avoid.