Here's all you need to know about Mishka Exim IPO

Mishka Exim IPO scan by VS Fernando

A Chartered Accountant whose 33-year-experience in import-export operations, finance, equity and commodity broking could earn just Rs 1.77 lakh in a year from ten `established’ companies is asking public to invest Rs 5.45 cr in his less than a year-old trading venture. All he could showcase till date is a group net worth of more than Rs 70 cr through cross investments among group companies at unjustifiable premiums! On what basis, is BSE offering its platform to such `proven’ promoters whose pastime seems to be floating companies for circular investments or trading?

The OfferThe present offer from the Delhi-based Mishka Exim Ltd is the ninety-seventh IPO to hit the BSE’s SME Platform. The IPO is a fresh issue of 54 lakh shares of Rs 10 each at par. Investors need to apply minimum 10000 equity shares. For its IPO, Mishka has hired the Mumbai-based First Overseas Capital as lead manager. New Delhi-based Indo Jatalia Securities has been roped in as market maker. Whereas the lead manager has underwritten 17% (Rs 95 lakh) of the issue, the designated market maker, who is subscribing 2.9 lakh shares (Rs 29 lakh) in the public issue, has committed to underwrite 83% (Rs 4.5 cr).

Issue Object

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Besides deriving the benefits of listing, the objects of Mishka’s public issue are: To fund working capital requirement Rs 350 lakh; To part-finance commercial unit situated in Shahdara, Delhi, Rs 100 lakh; General corporate purposes Rs 61 lakh and meeting issue expenses Rs 34 lakh.

Lineage

Mishka is less than a year-old company, incorporated only in August 2014. However, the company has already raised Rs 9 cr as equity capital which is the largest among the eleven group companies. Whereas the promoter group have staked in Rs 6.1 cr (68%) an extended family of Gargs (18 people) have contributed Rs 2.9 cr (32%) which is classified as public holding!

The promoter-cum-managing director of the company, Rajneesh Gupta (54), a graduate from Delhi University and also a qualified chartered accountant, claims to have more than 33 years of experience in import export operations, finance, equity & commodity broking, etc. He is said to have been advisor to various companies in diversified sectors. Nonetheless, none of the details of the companies with which he was associated before venturing on his own is disclosed in the offer document.

Also, Varun Gupta (26), son of Rajneesh Gupta, is the `Non Independent Non Executive director’ of the Company. He is also designated as Chief Financial Officer of Mishka. He is a Bachelor in Technology and claims to have seven years of experience in running “Non-Banking Finance Companies and other investment companies”. However, the details of the companies with which he had associated are not disclosed in the offer document.

Mishka’s offer document names 10 entities viz. Vinayak Holdings (P) Ltd, Tridev Securities (P) Ltd, Varun Capital Services Ltd, Saraswati Securities (P) Ltd, Starlight Holdings (P) Ltd, Supertech Financial Services (P) Ltd, Godgift Investments (P) Ltd, Cross River Securities (P) Ltd, NCD Securities (P) Ltd and Varun Commtrade (P) Ltd as group companies many of which have cross holdings. Interestingly six more companies too are holding shares in some of the group companies but, their ownership is not revealed in the offer document.  

For instance, Star SVLV Consultants (P) Ltd (11.65%) and Icon Training Solution (P) Ltd (10.11%) are the top two shareholders of Tridev Securities. Remote Equity (P) Ltd (19.4%) Pragun Finance (P) Ltd (13.9%) and Goodly Developers (P) Ltd (2.26%) are significant stakeholders in Saraswati Securities. Manu Credit India Ltd (4.11%) and AVM Consultancy (P) Ltd (1.44%) are notable shareholders in Starlight Holdings.

As regards the group’s financial track record, half of the group companies were formed in the mid-nineties when there was an unprecedented boom in the primary market. Three companies were registered in February 1995 alone. Four companies were incorporated on the same day of August 28th 2008! Interestingly, the companies registered in the mid-nineties have larger capital base than the ones registered in 2008. 

All the 10 existing closely-held companies have a collective net worth of Rs 70 cr thanks to circular equity contributions. These 10 companies reported aggregate revenue of Rs 15.70 cr for fiscal 2014 on which they netted a profit of just Rs 1.77 lakh. If 10 companies having completed 5 to 20 years could earn only an abysmal profit, what can one expect from Mishka which is not even a year-old?

Business Track

Mishka is expecting us to believe that it is a multi-product trading company with a diverse product portfolio. It claims to deal predominantly in lifestyle products such as Jewellery, Ornaments and Fabrics. It also boasts of serving corporate and other clients from various spheres of industry. They say that their customers during FY15 in fabric sector included Deepa Trading and Ishan International, and in jewellery and ornaments, the customers included Happy Impex, Haryana Jewels, Amyrya Jewels amongst others.

However, the disclosures made in the offer document indicate that Mishka has nothing to boast of. In fiscal 2015, trading of securities was more than jewellery and purchase of securities was more than fabrics! The company’s total purchases were far higher than its sales. Significant amount of transactions were done through related parties. For instance, nearly Rs 2 cr worth of jewelry was sold to Happy Impex which is promoters’ own firm. Even while sales were much lower than purchases, the company has made advances worth Rs 3 cr to suppliers whose identity is not disclosed.

On sales of Rs 12.45 cr, MIshka’s operating profit was just Rs 8 lakh, operating margin being 0.6%. Though the company reported a marginal profit for the truncated year of operations, it had a negative operating cash flow of Rs 8.17 cr. None of the established group companies could post a profit of more than Rs 33000 in fiscal 2014. This could probably throw some light on how Mishka would fare post-IPO.

Manager’s Track

Mishka’s lead manager, First Overseas Capital (FOC), whose parentage was tainted in the 1990s securities scam, has handled six SME IPOs over a span of nine months (October 2014 to June 2015). Of these only Athena Constructions has fetched commendable appreciation. Three IPOs are currently languishing at 25% discount.

As regards liquidity, FOC-managed issues have not found trading for almost two-thirds days since listing. The market maker’s record too is far from convincing. The little known Indo Jatalia Securities is currently acting as market makers for three BSE-SMEs. While the last IPO, Yogya Enterprises, has traded 9 out of 10 days in past three months, the first one, Sirohia & Sons, listed in September last year, has found quotes only 8 out of 100 days!

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