Dixon Technologies (India) Limited IPO Message Board (Page 54)

Mind explaining a little more. I don''t really understand fundamentals.

Any IPO has 2 components, OFS (Offer for Sale) and Fresh Equity. An OFS is a sale of shares by existing shareholders as part of the IPO and Fresh Equity is the what the company gets out of the IPO. This Fresh Equity can be deployed into business to generate additional revenues, facility, reduce debt, better working capital. In this case out of 600 cr IPO, 540 cr of the collections will be taken by the existing shareholders who are selling their shares as part of IPO. Only 60 crore is received by the company. For a company that is making 46 crore as profit last year, share holders cash out for 540 crore cash by selling their partial stake.

In a normal scenario, unless it is a PSU sale offering (Cochin Shipyard as there the objective is disinvestment), a high OFS ( > 60%) that not the price is at a premium and should be a red flag for investors.

Hope it is helpful.

Got your point with more clarity now. Thanks for sharing your knowledge.

So apart from pricing it ridiculously high, they are not planning to utilize the proceeds of IPO for their expansion or development. That''s pretty bad for investors :(

@Ajay ji I respect your opinion , but a question to you, what do you do in case of IPO consisting of only OFS e.g. SBI Life ?
@Rajkumar Please read Object of Fresh Issue ,Objects of the Fresh Issue
Company proposes to utilise the Net Proceeds towards funding the following objects:

A. Repayment/pre-payment, in full or in part, of certain borrowings availed by the Company;
B. Setting up a unit for manufacturing of LED TVs at the Tirupati Facility;
C. Enhancement of our backward integration capabilities in the lighting products vertical at our Dehradun I Facility;
D. Upgradation of the information technology infrastructure of the Company;

Although what Ajay says sounds convincing... but, the objects of the issue are pretty clear and that shows, repayment of debts, setting up new unit etc... for which 60 crores seems to be too less... @Ajay... are we missing something ?

@Juju: if 90% is OFS and only 10% is being acutally used by the company (for whatever reason) its too less as Omkarji has pointed out.

Also in most cases OFS is brought about for Disinvestment of PSUs/PSBs where government holding is very high so I feel that''s a different case.

No rules work here.

Finally it is demand and supply & fancy shown by the institutions for the script.

Rules such as 4+5 =9 ; 2+6 = 8 will not work here.

No rules work here.

Finally it is demand and supply & fancy of the institutions for the script which ultimately decides the listing price.

It may be noted that 90% persons visiting this particular website in IPO section are only interested in "Listing Price".

When a listed company goes for an IPO (SBI Life, ICICI Lombard, L&T Fin, Syngene) of a subsidiary, the OFS can be high and also the price as the seller is not an individual but the shareholder of the parent company. The reason being that a new shareholder should not be coming at an expense of old shareholders. Same is true for disinvestment, where generally the price is kept low with retail discounts.

The red flag is glaring when with a new IPO listing with a very high OFS as in this case. Please understand that the reason of Fresh Equity are very much standard across all IPO (Coming is setting new facility, retiring debts, increase marketing or a new product line launch) Not fair to comment whether 60 crore is sufficient but it is obvious that the purpose of this IPO is not to scale the organization but to give an exit route to the existing shareholders. They can never come with a 100% OFS IPO as that will never be taken by the lead bankers.

Dear AjayArora Sir,
Your attention is invited to the Thyrocare Technologies Ltd IPO where in the entire issue (100%) consisted of OFS and no fresh issue. Issue details are as under:

»» Issue Size: 10,744,708 Equity Shares of Rs 10 aggregating up to Rs 479.21 Cr
› Offer for Sale of 10,744,708 Equity Shares of Rs 10 aggregating up to Rs [.] Cr
»» Face Value: Rs 10 Per Equity Share
»» Issue Price: Rs 420 - Rs 446 Per Equity Share .

Inspite of that the script listed at very good premium and even now it is trading at good premium.

Hope this explains my stand.

Ajayji I would like to thank you for your shared information.You taught us some very basics of value investing, which we generally ignore.
But as far as this IPO is concerned as PSR pointed out people here in this forum are more interested in short term prospects( Listing gains etc.) it is totally demand and supply which will guide its price.
With such good anchor list, I doubt it will open to discount.Anyways thanks for sharing your knowledge.
To apply or not is a call for individual

@PSR Thyrocare, devil is in details. The promoter sold only 1.1% stake via OFS, the remaining sale was by the VC firm. Thyrocare came at PE of 40 when their PAT Margin are in that range of 40%. For Dixon PAT Margin are in range of 3% and they care coming at PE of 60.

Disclosure - I applied to Thyrocare, got the allotment and sold the IPO shares at around 740.

I generally don''t sell IPO allotment for 1 year so don''t necessarily look at listing gains. The last I applied and got was Apex Frozen.

@Ajay Arora, what is your target for 1 year on apex frozen as you are holding shares. I am holding 2 lots. Thanks in advance

Demand & Supply does apply here.

When a share lists at a premium it should hold medium or long term promise or else no one will be interested and the price will start correcting soon.

So unless it''s a good investment for long term, even a good listing will not sustain.

So listing gains or whatever a good company is must.

i would like to Thanks Ajay Arora Sir, PSR Sir, Juju..... This information is really well.. and all points are very clear...

Every one invest money based on their plan and requirement.

As Ajay sir has pointed out it may not be long term holding however chances of listing gain can not disagree completely...

Current GMP is 400 in pune

@AjayArora: how did you come with OFS is 540?? i am new investor

PavanM, you should apply this IPO,

1. Because they are market leader and have no competition in their field.

2. Margin is low, but growth will be good, due to Make in India initiatives.

3. In future , it may have it''s own brands , thus improving profit margin.

4. Business wise , it is indian foxconn ( definitely not in terms of volume)

5. Client base can increase, because leading international brands want to geographically diverse manufacturing base (other than china), due to geo political tension.

6. Growing middle class base , and their want of consumer goods (especially smart phone sales with affordable internet)

It is my personal opinion.

Definitely for listing gain , if not an investment.

They have fierce competition from Chinese manufacturers. If they didn''t have competition they would be having better margins instead of measly 3%.

Any large Chinese company can shatter its dreams be offering attractive terms to its existing customers which are big but only few.

Risk averse investors should stay away.