Sai Silks (Kalamandir) is entering the capital market on 11^th February 2013 to raise Rs. 89 crore through a fresh issue of equity shares of Rs.10 each, priced between Rs. 70 to Rs. 75 per share. The company will issue 1.27 crore to Rs. 1.19 crore new shares at the lower and upper price band, respectively, in the public issue which closes on 13th February.

Ashika Capital is the BRLM to the issue. Now that in itself should flash red, huge red, like warning lights and sirens screaming together – to get out of their way! Run away from the issue!. If Amir Khan means quality movie then the exact opposite stands for Ashika!  This is the same BRLM who has the ‘credit’ of managing issues such as Olympic Cards (March 2012), Vaswani Industries (Sept 2011), VMS Industries (June 2011), Sudar Garments (March 2011), Tirupati Inks (Oct 2010) and Bedmutha Industries (Oct. 2010) in the past. What a track record! So by simply applying the probability theory, one can safely infer the fate of Sai Silks. Best is to stay away!

For those who feel that this is being very frivolous, more reasons to avoid.  Take a look at the name of the other BRLM – it is Ahmedabad-headquartered Vivro Financial and this is its maiden IPO in 3 years! This BRLM seems to be a mere facilitator for the ‘Gujarat’ catchment, operating offices in Baroda, Rajkot, Surat besides Ahmedabad. What an amazing choice of BRLMs!  This is really like a star cast for a B-grade movie!

Take it as a need or signs from the heaven but aptly, this is the first IPO to have safety net scheme for investors, wherein, if share price falls below issue price during first six months from date of allotment, then promoters will buy a maximum of 1,000 shares per allottee at issue price. This safety net, available only for originally allotted resident retail investors and not institutional investors, seems a mere gimmick, as the procedural aspect (regarding tendering shares and settlement) defeats the entire purpose. Why be a daredevil and foolhardy just to experience the safety net?  A trapeze artist in the circus?

For those not yet convinced – the company is a saree retailer with 15 outlets in South India, entailing 1.3 lakh sq. ft. of retail space. Owning three brands (Kalamandir, Mandir and Varamahalakshmi), the company also sells clothes for women, men and children, besides selling gold and silver articles through its stores. It also owns 2 MW wind mill capacity in Kurnool (Andhra Pradesh). Wow! A diversified company, right from sarees to wind mills, with low management bandwidth!

For FY12, it reported sales (all from traded goods) of Rs. 263 crore and net profit of Rs. 11 crore. It earned net margin of mere 4.4% in FY12, similar to any other retail players. In fact, in FY11, this was only 3.4% and even lower at 2.1% in FY10. This company is just a trading firm, with no advantages whatsoever, under its fold. For 7 months ended 31^st October 2012, sales stood at Rs. 168 crore with net profit of Rs. 7 crore, resulting in EPS of Rs. 3.5 on equity of Rs. 20.2 crore. The net margins saw a marginal drop to 4.2% during the first seven months of the year. We wonder how can such companies dare to enter the primary markets, and that too seek listing on the main bourses (unlike SME exchange). This is like a bad case of misplaced ambitions or the right ambitions for big money?

As of 31^st October 2012, company’s networth stood at Rs. 55 crore, while it is seeking a market cap of Rs. 231-241 crore, at Rs. 70-75 respectively, upon listing. That’s a price to book of 2.6-2.8 times on pre-money based valuation, which is nothing short of day-light robbery! Besides, the company has huge debt of Rs. 90 crore, mostly in the form of high-interest bearing short term borrowings. Its inventory as of 31^st October was Rs. 123 crore, which represents over 5 months of sales, which goes to highlight the pressure and slow moving nature of its product.

The objects of the issue are very loose and structured. It plans to use IPO proceeds to open 4 retail outlets for Rs. 13 crore, brand promotion expenditure worth Rs. 8.5 crore, working capital of Rs. 60 crore, debt pre-repayment of Rs. 0.91 crore (so miniscule and unnecessary). Besides, company has related-party transactions of Rs. 146 crore during 7 months of current fiscal, raising concerns on promoters, corporate governance and financial independence.

In short, this issue is incredibly weak and one must avoid it, at all cost!