By Research Desk
about 10 years ago

Update (28th September 2011, 9 pm):  Due to the utterly poor response to IPO, having subscribed just 1.57% till now, closing date for the issue is extended by 5 days to 5th October 2011 from the earlier closing day of 28th September. Further, issue price band has been lowered to Rs. 84-90 from earlier Rs. 90-100 per share. Even on the revised band, issue is avoid.


Swajas Air Charters has entered the capital market on 26th September 2011 to raise Rs. 37.5 crore via a fresh issue of 38-42 lakh equity shares of Rs.10 each, in the price band of Rs. 90 to Rs. 100 per share. The issue, comprising 25% of the company's post issue paid-up capital at the upper price band, closes on 28th September.


The company is a non-scheduled airline operator providing air charter services primarily in South India. It currently operates a fleet of 1 Cessna aircraft and 2 Bell helicopters on dry-lease basis (only airline taken on lease, while insurance, crew and maintenance done by the company) and 2 helicopters on wet lease basis (airline taken on lease along with insurance, crew and maintenance). It also operates other helicopters / aircrafts on different arrangements, as and when need arises.  


Through the IPO proceeds, company plans to buy a year old Bell 407 helicopter as well as a second-hand PC Pilatus aircraft for Rs. 23 crore, so as to improve its asset base and reduce dependence on the lease route, thereby improving margins. It also plans to establish MRO / hangar facility at Chennai Airport for Rs. 9 crore and buy office in Chennai for Rs. 3.5 crore. Another Rs. 3.8 crore will meet future working capital requirements. Company has issued equity to promoters, raising Rs. 5 crore, which have been deployed for partly meeting the above objects.     


As the scale of operations are limited to a handful helicopters and aircrafts, for FY11, company reported revenue of Rs. 32 crore and earned PAT of just Rs. 1.3 crore, leading to net margin of 4.1%, on account of high operating expenses. Its EPS for the year stood at Rs. 1.15 on fully diluted equity of Rs. 11.25 crore. Since it has miscellaneous expenses not written off worth Rs. 4.4 crore, net worth stood at Rs. 9.4 crore, as of 31st March 2011.


At the upper end of price band of Rs. 100, company is offering shares to the public at a PE multiple of over 26 times, on pro rata earning, or at a PE of 87 times on fully diluted equity,seeking market cap of Rs. 150 crore on listing (at Rs. 100 per share), which is ridiculously expensive. A service company with annual topline of just 32 crore and net margins of sub-5%, which does not even own the assets, cannot command such premium valuation! Since the asset purchase will be completed by end of FY12, no significant improvement in financials is expected to accrue in the current year also.


On a peer comparison too, the issue is very aggressively priced. The only other listed air-logistics company Global Vectra Helicorp, with a fleet of 24 aircrafts and annual revenue of over Rs.200 crore, is currently ruling at a market cap of less than Rs. 30 crore on BSE, despite net profit of Rs. 1.6 crore on revenue of Rs. 69 crore for the first quarter of FY12.  


Aryaman Financial Services is BRLM for this small issue, which is itself a micro-cap BSE listed stock having market cap of Rs. 21 crore. Formerly, the merchant banker had handled smaller and value-lacking IPOs having seen operator play, such as Mid-valley Entertainment in Jan 2011 and Niraj Cement in June 2008. Thus, the track record also portraits a very poor picture.


Fundamentally, the stock deserves a price of not above Rs. 20 per share.


Thus, considering all the above aspects, issue of this tiny company is very expensively priced and hence avoid!

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