Roopshri Resorts BSE SME IPO review (Avoid)

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Review By Dilip Davda on March 16, 2019

•    RRL does not own any asset, It just operates the hotel on leave and license basis.
•    Current working is not encouraging and sudden growth in top and bottom line for FY18 and FY19 – seven months raises concern.
•    The issue is priced aggressively.
•    LM's have poor/average track records.   

ABOUT COMPANY:
Roopshri Resorts Ltd. (RRL) is a hospitality company which is currently operating 'Hotel Alexander' at Matheran, which is a popular hill station in Maharashtra. Hotel Alexander is one of the oldest hotel properties in Matheran and has been in existence operating under this brand for over 3 decades. The property is located in a secluded hill side and is an ideal for getting away from the city's hustle and bustle. The Hotel is around 3 hours by road from Mumbai and around 2 hours from Pune, both of which are the major customer segment of the Hotel.

The company has been operating as a service provider for this Hotel over the years and thereafter it has recently taken the hotel property on leave and license from its owner. The Hotel had not been operating to full capacity due to the poor condition of the hotel facilities and hence RRL shall be conducting restoration and repairs work and shall be making the Hotel fully operational and increase its scale of operations.

The Hotel comprises of 13 private cottage rooms and 12 executive rooms, of which only 4 private cottage rooms are in operational condition. Further, the hotel is currently only offering lodging facilities. The look and feel of the property are of 'heritage living with nature' and does not require large amounts of investment w.r.t state of the art interiors etc. This makes this a value for money proposition.

The company does not own any real estate. The Hotel Property is taken on leave and license. There is no material outflow in the form of rentals or license fees and hence it makes operating cash flow stress free. RRL has currently 11 employees including two executive directors and 3 non-executive directors.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans for repayment of loans and repairs and restoration of Hotel Alexander at Matheran and general corpus fund needs, RRL is coming out with a maiden IPO of 1800000 equity shares of Rs. 10 each at a fixed price of Rs. 20 per share to mobilize Rs. 3.60 crore. The issue opens for subscription on 19.03.19 and will close on 22.03.19. Minimum application is to be made for 6000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME.

The issue is jointly lead managed by BCB Brokerage Pvt. Ltd. and Aryaman Financial Services Ltd. Bigshare Services Pvt. Ltd. is the registrar to the issue and BCB Brokerage Pvt. Ltd. is acting as market maker as well. Issue constitutes 37.42% of the post issue paid up capital of the company.  Having raised initial equity at par, RRL has issued further equity at a price of Rs. 20 per share in October 2018. The average cost of acquisition of shares by the promoters is Rs. 13.33 per share. Post issue RRL's current paid up equity capital of Rs. 3.01 cr. will stand enhanced to Rs.4.81 Cr.

FINANCIAL PERFORMANCE:
On financial performance front, for last three fiscals, RRL has posted turnover/net profits of Rs. 0.37 cr. / Rs. 0.02 cr. (FY16), Rs. 0.41 cr. / Rs. 0.02 cr. (FY17) and Rs. 1.43 cr. / Rs. 0.10 cr. (FY18).

For the first seven months ended on 31.10.18 of FY19, it has earned a net profit of Rs. 0.08 cr. on a turnover of Rs. 1.94 cr. The quantum jump in the top and bottom line for FY18 and FY19 first seven months raises concern. For the last three fiscals, RRL has posted an average EPS of Rs. 0.63 and RoNW of 5.70%. The issue is priced at a P/BV of 1.50 based on its NAV of Rs. 13.33 as on 31.10.18 and at a P/BV of 1.26 based on post issue NAV of Rs. 15.83.

If we annualize latest earnings and attribute it on fully diluted post issue equity, then asking price is at a P/E of around 69 against the industry average of 62. Thus the issue is priced exorbitantly.

COMPARE WITH LISTED PEERS:
As per offer documents, RRL has shown The Byke Hospitality, Aruna Hotels and Woodsvilla as its listed peers that are currently trading at a P/Es of around 6, NA and NA (as on15.03.19). However, they are not strictly comparable.

MERCHANT BANKER'S TRACK RECORDS:
On merchant banker's front, this is the 2nd mandate from BCB Brokerages in last three fiscals. The only listing of Escorp Asset was opened at par with offer price on the day of listing.

From Aryaman Financial, this is the 41st mandate in last three fiscals. Out of last 10 listings, 1 opened at discount to offer price and the rest 9 opened with a premium ranging from 0.02% to 0.08% on the day of listing.

Thus both lead managers have poor/average track records.

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