By VS Fernando, IPO Analyst at India Aarthik Research 

Jupiter Infomedia: Dividend paying company slated to go out of dividend list post-IPO though dot.com companies' valuations offer scope for capital appreciation.

The Offer

The Mumbai-based Jupiter Infomedia Ltd (JIL) is making a tiny public offer of 15 lakh shares at a fixed price of Rs 20 a piece. Being a SME Platform offer, the minimum application amount has been kept at Rs 1.2 lakh or 6000 shares. The public issue has been fully underwritten by the Investment Banker (Aryaman Financial) and Market Maker (BCB Brokerage).

Issue Object

The main objects of JIL's public issue are purchase and set-up of offices in Mumbai and Kolkata (Rs 260 lakh), Renting offices in Ahmedabad, Chennai and Delhi (Rs 35 lakh) besides meeting the initial (first three months) operating expenses for the marketing/branch office (Rs 65 lakh) .

Parentage

The promoters of JIL namely Umesh Modi and Manisha Modi are new to the investing public. As per the offer document, the promoters have never been associated with any public company in the past. Though do not seem to have enough net worth of their own, the promoters have staked in more than Rs 2.7 cr. In the post-issue capital of Rs 3.49 crore promoters propose to hold 57%.    

Business

JIL presents itself as a web info-media company with publications on business, encyclopedia and yellow pages. The company aims to develop an online information library that would provide in-depth information to its visitors on various topics. Currently, JIL claims to have three online publications - a business directory (B2B portal operating through the website www.JimTrade.com), an Encyclopedia on India (operating through the website www.IndiaNetzone.com) and an online yellow pages directory (operating through the website www.jimyellowpages.com). 

Prospects

The future of JIL largely depends on advertising revenue. The online advertising market comprises of search, display, and rich media, video and is currently valued at around Rs 1850 cr which is said to be 7% of the overall advertising pie. Advertisers in India are now reportedly spending 5-10 % of their advertising budgets on the internet. Due to increasing internet penetration and improved user engagement, the time spent on the web is expected to increase significantly, resulting in online advertising to account for 10-15 per cent of the overall advertising market by 2015. While the internet industry offers vast potential, existing Indian dot.com players' financial performance is far from convincing.

Valuation

Until early this year JIL's capital was at just Rs 3 lakh. In March 2012 the company made a bumper 12:1 bonus issue thereby enhancing the capital to 39 lakh. Post-bonus, the company allotted 10.6 lakh shares at a price of Rs 15 a piece to promoters, associates and others which enlarged the capital to Rs 1.45 crore.

Even though JIL's capital base increased multifold in just one year, its revenue has been static for the past five years. From Rs 56 lakh in 2008 revenue grew to Rs 80 lakh in 2011 but, in fiscal 2012 dropped to Rs 64 lakh. After peaking at Rs 10 lakh in fiscal 2010 the company's net profit dropped to Rs 5.5 lakh in 2011 and to just Rs 2 lakh in fiscal 2012.

The company's profit is already very small as compared to its pre-issue capital of Rs 1.45 crore. Post-issue capital will increase to Rs 3.49 cr and in all probability the dividend-paying company may go out of the dividend list as its current bottom line is too minuscule to consider any dividend.

Concerns

• Significant portion of revenue depends on advertising which do not have any long term commitment
• Loss of advertisers or reduction in spending by advertisers could seriously affect company's financials
• Product brands viz JimTrade.com, IndiaNetzone and Jim Yellowpages have not been registered as Trademarks and are thus not protected under any intellectual property act in India or elsewhere
• A majority of the company's portals are still in development stage
• Properties proposed to be acquired from the issue proceeds are yet to be indentified
• Stiff competition from other online media companies, both in India and Abroad
• Promoters' average cost of holding is only between Rs 9 and Rs 13.50 a share as against public cost of Rs 20
• Funding plan not appraised by any external agency
• Present bottom line too small (Rs 2 lakh) to adequately service the post-IPO capital of Rs 3.49 crore 

Investment Banker's Track

Of late the Mumbai-based investment banker Aryaman Financial seems to have a monopoly in managing the public issues offered through the SME Platform. During the mid-nineties primary boom too Aryaman handled the most number of tiny IPOs a majority of them vanished subsequently. In fact except a couple, most of IPOs inflicted huge losses on investors.