Inventure
Inventure Growth is entering the capital market on 20th July 2011 with a public issue of 70 lakh equity shares of Rs.10 each, in the price band of Rs. 100 to Rs. 117 per share, to raise Rs. 70-82 crore. The issue, comprising a dilution of 33.33%, closes on 22nd July.
We have been repeatedly warning our readers and the investor community at large, against highly-manipulated IPOs being undertaken by promoters in nexus with several intermediaries to trap gullible retail investors. This is yet another issue from the same family of 'fundamentally unsound' IPOs with a sole motive to trap retail investors. Stay clear of it!
A securities broker, Inventure Growth has operations mainly in the western geography of the country. IPO of a brokerage house, in the present market conditions, is very futile, given that brokerages are down-sizing operations and barely managing to stay afloat due to intense competition from both foreign security houses as well as the more-established domestic players.
Microsec Financial Services was a brokerage firm to have gone public in October 2010 at an IPO at Rs. 118, while it is presently quoting at less than third of its valuation at Rs. 36 per share. Similar is the case with other larger brokerages such as Edelweiss Capital, Motilal Oswal and Emkay Global, to name a few, which have seen contraction in their market caps, of anywhere between 35% to 66%, since the time of their IPOs.
Like other listed brokerage houses, Inventure Growth also reported de-growth in FY11 with respect to the previous year, as client turnover reduced to less than half from Rs. 1 lakh crore in FY10 to Rs. 43,000 crore in FY11.Infact, it is futile to present these turnover in absolute numbers, which no brokerages are doing now, as also shows a childish move on part of this company to do so. During the 3 year period between FY08 to FY11, revenue declined 4% on a CAGR basis, to Rs. 41 crore in FY11, from Rs. 47 crore in FY08, while PAT contracted by 28% CAGR to just Rs. 6 crore from Rs. 16.5 crore in FY08.
Inventure Growth does not have any investment banking or corporate advisory outlet, which can support it with high fee income. Its arbitrage and trading business is also showing fluctuating performance - In FY10, of revenues of Rs. 46 crore, trading and arbitrage income constituted 23%, while in FY11, it incurred a loss on trading and arbitrage, which again reflects poorly on its operations and financials. Moreover, wide annual fluctuations in proprietary turnover, revenues and net profit all lead to discomfort on the business as a whole.
For FY11, company reported EPS of Rs. 4.44 on equity of Rs. 14 crore. At upper end of 117, share is being issued at a PE multiple of 26 times, which is highly aggressive given that brokerages of much better scale and size, are ruling in single digit PE and are not having any positive outlook for the future. Expected market cap of Rs. 246 crore on listing at upper band, is gross overvaluation. Just for comparison, Emkay Global with annual topline of Rs. 118 crore is ruling at market cap of less than Rs. 100 crore.
While company's networth is Rs. 80 crore, as of 31st March 2011, it had total debt of Rs. 45 crore. Post IPO, promoter holding will fall to 48.02% from 72.02% currently, as equity and net worth expand to Rs. 21 crore and Rs. 162 crore (at upper price band), respectively. Funds raised via the IPO will be invested in subsidiary company engaged in lending, to the extent of Rs 30 crore, while Rs 20 crore will be utilised for working capital. Funds to be utilized for general corporate purposes may be over 25% of issue size.
Given the poor outlook towards the sector and the company's aggressive pricing, the issue is a clear avoid.