Lakhotia Poly IPO: Circular funding weaves unholy alliance!

OFFER AT A GLANCE
Name	Lakhotia Polyesters (India) Ltd
Offer Amount	Rs 5.08 cr
Offer Quantity	14.52 lakh shares of Rs 10 each
Offer on Total Equity	38.8%
Post-issue Free Float	68.2%
Post-issue Promo stake	31.8%
Post-IPO Capital	Rs 3.74 cr
Offer Price	Rs 35
Application Quantity	4,000 & Multiples of 4,000
Offer Opens	March 19, 2013
Offer Closes	March 21, 2013
Listing	SME Platform of BSE
Rating	Nil
Lead Manager	Intensive Fiscal
Registrar	Sharex Dynamic

                          Unassuming Stake While LPIL offers about 39 percent of its equity through the IPO, the promoters' stake in the company would be less than 32 percent! Whereas the public is asked to shell out Rs 35 per share, the promoters' average cost of holding is only between Rs 7.22 and Rs 15.24. With such a poor financial commitment, what can the investing public expect from the promoters? As regards the company's financials, in fiscal 2012, on a turnover Rs 7.96 cr, the company posted a meager net profit of less than Rs 7 lakhs. With such a dismal profitability, how it will service the post-issue capital of Rs 3.74 cr is anybody's guess. Also Read: HPC Biosciences lists at Rs 37.25 on BSE Circular Funding There seems to be a peculiar pattern among the IPOs associated with the investment banker Intensive Fiscal. Kavita Fabrics, which went public in February 2013, had Lakhotia Polyesters as strategic 'public investor' holding the entire pre-issue public holding investing Rs 3.8 cr. Interestingly Rs 3.85 cr had been invested in Lakhotia Polyesters by 2010-registered Kolkota-based Sanwaria Vincomm whose background is not disclosed in the offer document. The merchant banker himself is not able to throw much light on Sanwaria's financials. What's more intriguing is that Sanwaria invested in Lakhotia on the same date (August 31, 2012) on which Lakhotia invested in Kavita Fabrics!
 
Further, around the same time, Kavita Fabrics invested around Rs 4 cr into Bonanza Capital Markets Private Ltd. Market reports reveal that Bonanza Capital offloaded a sizeable chunk of Inventure Growth shares at a rate far below the IPO price. Incidentally Inventure Growth IPO was managed by Intensive Fiscal. These dealings suggest that there is an unholy alliance among the merchant banker Intensive Fiscal, Inventure Growth, Bonanza Capital, Kavita Fabrics, Lakhotia Polyesters and Sanwaria Vincomm. Sebi, are you listening? In fact, the present offer is the fifth IPO in as many years lead-managed by Intensive Fiscal. While the last offer, Kavita Fabrics, is currently quoted by the market maker with a marginal premium, the other three have inflicted heavy losses. The worst performer, Inventure Growth, has eclipsed more than 77 percent of the investment value.

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