By VS Fernando

'SME Platform' was originally conceived for helping genuine small and medium enterprises. But, today, it has become a tool for fly by night promoters to deploy the 'black money'. These IPOs are purposely under-marketed and retail investors are put off by keeping the minimum application amount as high as Rs 1 lakh! When small investors are kept at bay, lead-managers and their cronies are underwriting the issue to the full. It is indeed worth investigating the underwriters’ source of funds. 

The Offer

The present offer from BCB Finance (BFL) is the first IPO to be listed on the SME Platform in the country. As if to keep the retail investors away from the issue, the minimum application size has been fixed at Rs 1 lakh. In other words, prospective investors have to apply minimum 4000 equity shares.

Issue Object

The present issue is being made to augment the company’s capital base in order to expand its NBFC activities. 

Parentage

BFL is promoted by the Mumbai-based father-son duo stock brokers Bharat and Uttam Bagri. Until recently, they had been associated with at least half a dozen companies of no repute. Strangely in the last one and half years they have disassociated from these entities. Interestingly Yash Trading and Finance Ltd where the Bagris had 75% stake until mid 2011 witnessed a sudden spurt in its share price in recent times (Rs 10 share shooting up to over Rs 200 without an adequate bottom line to support) which has been under Sebi’s scrutiny now. The broking firm of the promoters, BCB Brokerage Pvt Ltd netted a profit of just Rs 2.5 lakh on a net worth of Rs 10.48 crore in Fiscal 2011.

Valuation

For the Fiscal 2011, BFL posted Rs 1.47 crore revenue on which it netted a profit of Rs 23 lakh which yielded an EPS of just 28 paise on the pre-issue equity of Rs 7.96 crore. The equity is now proposed to be increased to Rs 11.5 crore. The current financials thus cannot justify the offer price of Rs 25 per share. In fact the promoters’ average cost of holding is just Rs 3.18.

Investment Banker’s Track

BFL’s IPO is managed by the Mumbai-based Aryaman Financial which has a pathetic track record. Though it has successfully managed as many as 60 IPOs since 1995, hardly a sixth is quoting above the offer price. In fact more than 40 IPOs have vanished from the scene.

The most recent IPO managed by the investment banker, Swajas Air, failed to pass the muster. The last so called successful IPO, Midvalley Entertainment, is currently languishing at less than one-fourth of the offer price of Rs 70.

Performance of Aryaman Financial-associated IPO

(Source: India Aarthik Research)

Concerns

• Operating cash flow negative in four out of 6 years
• Current return on Net Worth is abysmally low at 2.1%
• Premium issue entails no dividend
• Promoter-directors face legal proceedings for financial claims aggregating to Rs 10 crore
• Company has reportedly paid compensation to employees related to the promoters beyond the stipulated limits
• No fixed investment plan drawn for more than two-thirds of the issue amount (Rs 6.15 crore)
• Public company does not have an office of its own and occupies the office space allotted by the BSE to the promoter’s broking firm!