Indo Thai Securities is entering the capital market on 30th September 2011 with a fresh issue of 40 lakh equity shares of Rs.10 each, in the price band of Rs. 70 to Rs. 84 per share, aiming to raise between Rs. 28-34 crore. The issue, comprising 40% of the company's post issue paid-up capital, closes on 5th October.
Attention is drawn towards the wide price band of 20%, the maximum permitted by SEBI. Besides the issue size being a paltry sum of about Rs. 30 crore, the heavy dilution of 40% is also concerning. Also, the September syndrome seems to have hit this issue. Since SEBI guidelines require updating IPO prospectus with audited statements, not more than 6 months old from issue opening date, company has presented financials upto 31st March 2011 and opening the issue on the last day i.e. 30th September to avoid re-audit and added compliance.
Ahmedabad-based Corporate Strategic Allianz Limited is the book running lead manager to the issue. The merchant banker has previously handled similar small and poor quality issues such as Timbor Home (June 2011) and Rushil Decor (July 2011), which have seen hectic operator play, sans fundamentals, on the bourses.
Indore-based stock broker Indo Thai Securities is promoted by 2 Doshi chartered accountant brothers. The company is a local (not even regional) player with limited operations and presence, having 12 branches in Madhya Pradesh and 2 in Mumbai, besides 60 business associates mainly in Madhya Pradesh.
A cursory glance through the financials of the company leads one to thinking that, these days, just about anybody is tapping primary markets for fund-raising. A company earning just Rs. 1 crore in annual profits is dreaming of a valuation of Rs. 84 crore, on listing, assuming upper end of price band of Rs. 84.
For FY11, company clocked revenue of mere Rs. 4.4 crore, down from Rs. 4.7 crore in FY10. Its FY11 PAT stood at Rs. 1.06 crore, down nearly 50% from FY10's PAT of Rs. 1.95 crore. Moreover, debtors outstanding as of 31st March 2011 were as high as Rs. 2 crore. On equity of Rs. 6 crore, EPS for FY11 stood at Rs. 1.77 and net worth of Rs. 7.76 crore. New equity will be Rs.10 crore, while promoter holding, currently at 84.91%, will decline to 50.94%, post-IPO.
Company intends to spend IPO money for adding 10 new branches and upgrading existing ones for Rs. 2 crore, purchasing office space in Mumbai and Indore for Rs 4 crore each, brand building and advertising worth Rs 3 crore and augmenting working capital requirement worth Rs 10 crore. Spending Rs. 8 crore for office space is no justification for going public, while other objects such as brand building and upgrading existing branches are quite intangible and petty. To say the least, objects of any IPO cannot get more structured than this!
At Rs. 84 per share, shares are being offered at a PE multiple of 48 times - we havn't missed any decimal point here! In a scenario when large broking houses with deep pockets are finding the going tough and many of them actually down-sizing operations, this company actually needs courage to firstly launch such an IPO and then to price it beyond any rationale and justification! But answer is simple and obvious - operator play on listing, where retail traders will get trapped in the stock.
Company fundamentals do not even justify a value of Rs. 10 per share. Simply avoid the issue, as this will also turn out to be one of those operator-promoter-BRLM nexus manipulated stock.