Tapping the big bazaar of IPO, sans fundamentals!
Future Capital Holdings is entering the capital market on 11th January, 2008, with a public issue of 64.23 lakh equity shares of Rs.10 each, in the band of Rs.700 to Rs.765 per share.
The company was incorporated on 18-10-2005. Net worth of the company on 30-09-07 was at Rs.242.13 crores. This is due to equity capital of Rs.56.80 crores and share premium of Rs.195.69 crores.
Debit balance in profit & loss account as at 30-09-07, was at Rs.12.07 crores, which has reduced the net worth. The company had issued equity shares to promoters on 27-09-07 at Rs.117.50 per shares, while to other strategic investors at Rs.178 per share on the same day. The promoters were issued, on the same day, 21.15 lakh equity shares at par. For FY 07, the PAT of the company was at Rs.4.68 crores, on total income of Rs.37 crores. For H1 of FY 08, total income was at Rs.31.27 crores with net loss of Rs.12.21 crores.
The company has seven wholly owned subsidiaries and none of them have a paid-up equity in excess of Rs.3 crores. For H1 of FY 08, the aggregate PAT of all the companies are at Rs.95 lakhs. The main business of the company, is into three areas viz., Investment Advisory Services, Retail Financial Services and Research. Research is a pre-requisite for any Investment Advisory Services. So how can that be an area of activity? Also, in Investment Advisory Services, it is broadly into two segments of Real Estate and Private Equity. The main forte of any player in both these areas, are of an Investment Banker, which is definitely missing from the company.
It is true that the company, in its Investment Advisory Services acts as an Investment Advisor to three offshore Investment Managers, which are managing about Rs.3,833 crores, but the job quality, revenue stream and non-availability of break up, does not instill any confidence. Even Retail Financial Services were started in June 2007, mainly to cater to the clients of Pantaloon Retail.
The biggest attraction, in the IPO is the grey market premium of Rs.610 per share. The promoters have got themselves, allotted 74.46% with an average cost per share to Pantaloon Retail at Rs.17.12, to Kishore Biyani at Rs.57.25 and to Sameer Sain at Rs.28.64. The expanded equity of Rs.63.23 crores results into a market capitalization of Rs.4,833 crores and at Rs.8,700 crores at an expected listing price of Rs.1,375 per share. Definitely does not deserve this pricing on looking into its present financials!
The proposed IPO would mobiliseRs.491 crores, which would improve the financial performance of the company in the future. The present book-value of about Rs.42 per share would get enriched with proposed IPO, coupled with the benefits of company, will start earning from IPO fund infusion.
The proposed issue has been structured to capitalize on the boom of financial services sector, coupled with fund mobilization of Rs.500 crores. A classic case of encashing brand equity sans fundamentals.
Zerodha (Trading & Demat Account)
RHP
