The stock cannot be compared to its competitors because they are not listed
Ahmedabad-based Aster Silicates, a manufacturer of sodium silicate, hits the market tomorrow. The company has set the price band at Rs112-Rs118 per share and plans to raise Rs53.10 crore from the IPO. The issue opens on 24 June 2010 and closes on 28 June 2010.
Aster makes sodium silicate which is an intermediate product for the personal care industry. Sodium silicate is used to make adhesives, cements, detergent & soaps, gels, catalysts and zeolites. It also used for soil stabilisation, water treatment and coatings.
Aster plans to acquire plant and machinery worth Rs36.65 crore or 69.04% of the issue proceeds for its proposed projects.
Based on 2009-10 earnings per share (EPS) of Rs5.14 its P/E at the lower end of the price band stands at 21.79 and at the higher band at 22.96. Its EPS for 2009-10 is Rs5.14.
There are 13 criminal proceedings filed against the company relating to income-tax, excise and foreign trade.
The company posted a net profit of Rs4.42 crore on a total income of Rs61.87 crore for the year ended 31 March 2010. Its top three customers contributed 60.95% of its sales for the year ended 31 March 2010 and the top five customers contributed 83.08% of sales for FY 2010.
The proceeds of the IPO will be utilised for expanding its manufacturing capacity of 50 MTPD (metric tonnes per day) of sodium silicate to 350 MTPD and to fund its additional working capital requirements. Rating agency Brickwork has assigned 'IPO grade 2' to the offering, indicating 'below average' fundamentals.
The company's closest competitors like Swapna Chemicals, Saibaba Chemicals and Nenco Chemicals are unlisted entities. Saffron Capital Advisors Pvt Ltd is the sole lead book running manager to the issue.
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The company has fixed the price band at Rs 850-985 for the IPO, which is slated to open on 28-07-10. The company is proposing to issue1, 67,91,579 Equity Shares of Rs. 10 FV, including the offer for sale of 93,46,256 shares.
The company earned a net profit of Rs 173.95cr for FY10. On the post issue capital of Rs 71.97cr, the EPS comes to around Rs20/- At the upper price band, the company is demanding a valuation of almost 50 times its FY 10 earnings. For an NBFC, which has limited period of history and no dividend track record, the valuation is very very much stressed.
APART FROM IRRATIONAL PRICING, CONSIDER THE FOLLOWING BEFORE TAKING THE INVESTMENT DECISION:
1. Unethical business: The Company is charging interest around 40% p.a. on money lent to the poor and down trodden.
2. Unsustainable business model: The business model will not sustain in the long -run.
3. No commitment from the promoters: SKS’s founder and chairman sold his shares to Tree Line Asia Master Fund (Singapore) Pte for $12.9 million in Feb. this year.
4. Look at the salary of top executives:
Suresh Gurumani - Managing Director of the Company. The total monthly salary is Rs. 12, 50,000. In addition to the above, Mr. Suresh Gurumani was paid onetime bonus of Rs. 10,000,000, in April 2009.
Dr. Vikram Akula - chairman Rs 70.00 lacs p.a. In addition, ESOP amounting to Rs10.97lacs, totaling Rs 1.79cr p.a.
The irony is they are trying to eradicate poverty.
5. Mohd. Yunus says - “I get very worried when investment funds come to microfinance,” said the founder of Bangladesh’s Grameen Bank, which pioneered the industry by giving small loans to rural women to start their own businesses. “I don’t want to excite businessmen that there is profit to be made here,”
6. The IPO will make the promoters, and other venture capitalists including some P/E funds that have stakes in these companies’ millionaires. The hapless borrowers continue to live in abject poverty.
7. Government /RBI will not be mute spectators to the exploitation.
They are bound to regulate the segment. This will make the business un- attractive.
8. Financial inclusion initiatives taken by the public sector banks/government will marginalize the micro finance business. Do not buy the theories put forth by the BRLMs to sell the issue.
9. The average cost of acquisition of shares by promoters is less than Rs50/-
10. The Andhra Pradesh government has constituted district level ‘Task Force Committees’ (TFCs) to investigate the unethical practices of micro finance institutions in the state. The committees were constituted after the government received many complaints against the loan shark practices adopted by some leading MFI’s of the state.
RECOMMENDATIONS: CLEAR NO.
READ FULL ARTICLE IN - FIRST CHOICEIPOANALYSIS.COM
1. Unethical business: The Company is charging interest around 40% p.a. on money lent to the poor and down trodden.
2. Unsustainable business model: The business model will not sustain in the long -run.
3. No commitment from the promoters: SKS’s founder and chairman sold his shares to Tree Line Asia Master Fund (Singapore) Pte for $12.9 million in Feb. this year.
4. Look at the salary of top executives :
Suresh Gurumani - Managing Director of the Company. The total monthly salary is Rs. 12, 50,000. In addition to the above, Mr. Suresh Gurumani was paid onetime bonus of Rs. 10,000,000, in April 2009.
Dr. Vikram Akula - chairman Rs 70.00 lacs p.a. In addition, ESOP amounting to Rs10.97lacs, totaling Rs 1.79cr p.a.
5. Mohd. Yunus says - “I get very worried when investment funds come to microfinance,” said the founder of Bangladesh’s Grameen Bank, which pioneered the industry by giving small loans to rural women to start their own businesses. “I don’t want to excite businessmen that there is profit to be made here,”
6. The IPO will make the promoters, and other venture capitalists including some P/E funds that have stakes in these companies’ millionaires. The hapless borrowers continue to live in abject poverty.
7. Government /RBI will not be mute spectators to the exploitation.
They are bound to regulate the segment. This will make the business un- attractive.
8. Financial inclusion initiatives taken by the public sector banks will marginalize the micro finance business. Do not buy the theories put forth by the BRLMs to sell the issue.
9. The average cost of acquisition of shares by promoters is less than Rs50/-The Company has limited period of history and no dividend payment record.
10. The Andhra Pradesh government has constituted district level ‘Task Force Committees’ (TFCs) to investigate the unethical practices of micro finance institutions in the state. The committees were constituted after the government received many complaints against the loan shark practices adopted by some leading MFI’s of the state.
SKS Micro Finance earned profit before tax of Rs 267.70 crore on the total income of Rs 958.92cr for the FY 2010. The basic is EPS of Rs 33, much more than some of the large software companies. The country’s largest micro financier is exploiting the poorest of the poor in rural India in the name of providing credit access to them. The company charges interest between 27% -36% p.a. on money lent to the poor. On the one hand, the company says, that there is no scope for reducing the interest; on the other hand, the company is posting robust profits year after year. The so-called valuations they are trying to create for the company is to serve for their own selfish motives. That will benefit the handful of shareholders / promoters.