Onelife Capital IPO exorbitantly priced: Analysis

Loss-making Onelife Capital vie Rs 90 to Rs 100 premium for a Rs 10 paid-up share. How a two-year-operational company is allowed to pocket such a huge premium at one stroke?

The IPO

The present IPO is a fresh Issue of 33.5 lakh equity shares of Rs.10 each constituting 25.07% of the company’s post-issue capital. The offer, valued at Rs.34 cr to Rs.37 cr, is being made through the book-building route with a price band of Rs.100-110 per share.

Issue Objective

The main objects of this IPO are: buying office premises in Mumbai (Rs.7 cr), development of Portfolio Management Services (Rs.11.58 cr) and brand building (Rs.7.7 cr).

Parentage

The 63-year-old promoter-chairman of Onelife Capital Advisors Ltd (OCAL), T.K. Prabhakar Naig, has been associated with capital markets and investment banking activities for more than 25 years. He has previously held the position of President and Managing Director of Indbank Merchant Banking Services Ltd, a subsidiary of Indian Bank. Nevertheless, the track record of his firms numbered as many as 20 have nothing to boast about.

Business

As a SEBI-registered Category I merchant banker, OCAL is engaged in investment banking activities and it is now planning to venture into portfolio management and equity broking services. Currently, the company is focused on small and medium sized enterprises. OCAL has obtained Brokerage and Clearing member license from BSE in September 2010. 

Track Record

Even though formed four years ago (in August 2007), OCAL commenced investment banking only in fiscal 2010. The company’s first two years’ performance is far from impressive. At present OCAL has no branch network and currently it has a very small client base. Interestingly, while incurring losses, the promoter has subscribed 5.5 lakh shares at a premium of Rs.90 a piece!

According to CARE Report, OCAL is yet to receive payment of more than Rs 44 lakh from a company for services provided in fiscal 2010! What’s more, the company proposes to raise money from the public for buying an office while it has already parked Rs 4 cr as security deposit with a group company for using its office.  

Valuation

While a majority of OCAL’s peers are lowly discounted in the secondary market, the company has priced its share at an exorbitant rate though it is yet to earn profit!  The average cost of holding of the main promoter is only Rs.10. Considering the company’s pathetic fundamentals, how the management dares to go public with a steep price certainly puzzles many. Do the promoters think that the investing public can be fooled so easily, or are they into a game of converting black money?

(Source:India Aarthik Research)

Investment Bankers’ Track

The OCAL IPO is managed by another little known investment banker, Atherstone Capital Markets Ltd. Atherstone has brought out two IPOs in the recent past. Both the issues were offered at a price of more than Rs100. One of these IPOs was subsequently cancelled and the other one is languishing almost 70% below the issue price.

(Source: India Aarthik Reseach)

Concerns

• Limited operating history and certain businesses are yet to be launched.
• Loss making company, no dividend in sight
• Too many small entities (18 nos) in the group, some of them having conflicting interests.
• Negative operating cash flow.
• Stiff competition from financial services industry.
• Income Tax demand notice against one of the promoters.
• In the past advised by SEBI for market violation.
• Poor Rating (1 out of 5) by CARE