By Geetanjali Kedia
Update on Jan 9, 2015:
Even after lowering the price band and extending closing date, response to IPO of NCML Industries has been extremely poor (only 45% subscription till Jan 8). Rightly so, the issue has been withdrawn.
We hope that in future, such 'weak issues' refrain from entering the primary market.
Update on Jan 2, 2015:
NCML Industries has reduced its price band to Rs. 80 to Rs. 90 per share, with issue closing date having extended to 9th January, 2015.
But we hold our analysis and clear advise is to remain away from the issue.
NCML Industries has entered the primary market on 29th December 2014, with an offer for sale of 60 lakh equity shares of Rs.10 each, in the price band of Rs. 100 to Rs. 120 per share. The issue aims to raise Rs. 60 crore and Rs. 72 crore at the lower and upper end of the price band respectively and represents 25.48% of the post issue paid-up capital. Closing on Friday 2nd January 2015, Corporate Strategic Allianz is the BRLM to the issue, which has to its credit managing IPOs of Timbor Home and Indo Thai Securities, in 2011, which are currently ruling at 10% to 20% of the issue price! See IPO Statistics in Databank Section (https://www.sptulsian.com/databank/ipo_statistics) for more. Does it mean that such BRLMs are back in the market to rob the gullible investors? If this trend continues for long, it will be seen injurious to the health of the primary market.
NCML Industries is engaged in the manufacture and trading of edible oils like soyabean oil, cottonseed oil, palm oil, mustard oil and rapeseed oil. Besides importing half of its requirement from Indonesia and Malaysia for trading purposes, company has 600 tons per day edible oil refining unit in Uttar Pradesh, which was established in two phases in Q4 FY12 and Q3FY14. Geographically, its sales are limited to North India, conducted via 30 distributors each in Punjab and Haryana and 2 distributors each in Himachal Pradesh, Uttarkhand and J&K, under own brands Maanik, Maanik Gold, Shan, Moti and Pearl.
For FY14, company recorded consolidated revenue of Rs. 2,767 crore (up 39% YoY due to expansion in manufacturing capacity) with EBITDA of Rs. 137 crore, implying EBITDA margin of 4.9%. Net profit of Rs. 55.23 crore resulted in net margin of 2.0%. Thus, despite backward integration of captive manufacturing unit, margins are wafer-thin, as raw material cost accounts for over 90% of the selling price, leaving very limited room for margin expansion.
In Q1FY15, due to input cost pressures, EBITDA margins contracted to barely 2.5%, resulting in EBITDA of only Rs. 22 crore on revenue of Rs. 882 crore. Net profit for the first quarter was a paltry Rs. 6.64 crore, resulting in an EPS of Rs. 2.82 on equity of Rs. 23.55 crore.
As of 30th June 2014, company’s net worth stood at Rs. 320 crore, resulting in BVPS of Rs. 136. Its balance sheet has debt of Rs. 267 crore and cash of Rs. 262 crore, making it almost debt-free. Company has high outstanding debtors of 4 months or close to Rs. 950 crore, unlike peers like JVL Agro and Gokul Refoils, which have close to 1 month outstanding debtors.
Since it is an offer for sale by 3 private limited companies (all non-promoters), no proceeds from the IPO will go to the company. 2 of the 3 selling shareholders had invested in the company’s shares in Feb-Mar 2012 at Rs 125 per share, and are now exiting at a loss (even at upper end of Rs. 120 per share). Negative nominal returns (excluding interest cost for 3 years too) looks suspicious in this ‘seemingly’ bull market phase. And these firms are only making a part exit, trimming combined holding from 36.51% to 11.04%. Promoter holding, currently at 47.40%, will remain unchanged post IPO.
Due to wafer-thin margins sans room for expansion, coupled with commoditized nature of business, the IPO is an ‘avoid’ despite the valuation not being too aggressive. The BRLM track record is another big disappointment so is the part-exit of 2 strategic investors below cost.