VMS Industries Limited is tapping the capital markets with an issue to Raise Rs 2575 lacs in a price band of Rs 36-40. The issue has opened on Monday the 30th of May and closes on Thursday the 2nd of June.
| Price Band | Rs 36 – Rs 40 |
| Offer size in shares | 71,52,778 Equity Shares at Rs 36 to 64,37,500 Equity Shares at Rs 40 |
| Issue Size | Rs 2575 lacs |
| QIB’s | 35,76,389 Equity Shares at Rs 36 to 32,18,750 Equity Shares at Rs 40 |
| Non Institutional Investors | 10,72,917 Equity Shares at Rs 36 to 9,65,625 Equity Shares at Rs 40 |
| Retail Investors | 25,03,472 Equity Shares at Rs 36 to 22,53,125 Equity Shares at Rs 40 |
| Book Running Lead Manager | Ashika Capital Limited |
| Isssue Opening Date | Monday 30th May |
| Isssue closing date | Thursday 2nd June |
| IPO Grade | ICRA grade 1/5 indicating poor fundamentals |
| Paid -up Capital Pre IPO | 1,00,35,164 Equity Shares |
| Paid -up Capital Post IPO | 1,71,87,942 Equity Shares at Rs 36 to 1,64,72,664 Equity shares at Rs 40 |
| Market Cap post listing | Rs 61.87 crs at lower band to Rs 65.89 crs at higher band |
| Bid Lot | 160 shares |
| Bidding Amount for Retail | 4960 shares at Rs 40 or Rs 1,98,400 per application |
Business
The company is in the business of being a 25% partner in M/s Eternal Automobiles which is a 2 wheeler dealer of Honda motor cycle in Bhavnagar. The company is in the business of ship breaking at Bhavnagar and has also purchased one tug which is currently being operated on spot basis. The company believes its core business id ship breaking and offshore activities.
If one were to go into the history of the company it was incorporated in the year 1991 and was started with the object of providing consulting and information technology services. During the period 1992-1994 it was involved with computerisation of land revenue records. It then was involved in computerisation of ration cards. In 1994 it acquired a company Varun Gases involved with producing Oxygen. This plant was closed in 1997. The track record leaves a lot to be desired and this small company is yet to settle down into a steady business stream.
Objects of the Issue
The objects of the issue are as follows: –
| Modernization of our Ship Recycling Plot | Rs 558.00 lacs |
| Setting up of corporate office at Ahmedabad | Rs 110.00 lacs |
| Long term working capital requirement | Rs 1740.20 lacs |
| Issue Expenses | Rs 184.80 lacs |
| TOTAL | Rs 2593.00 lacs |
Financials
The company has reported a revenue of Rs 143.67 lacs for the year ended March 2009, Rs 2911.94 lacs for March 2010 and Rs 4988.87 lacs for the nine months ended December 2010. The margins were 7.22% in 2010 which are at 2.45% in the nine months ended December 2010.
| year 2009 | year 2010 | 9 months | |
| Dec-10 | |||
| Operation income from business | 143.67 | 2911.94 | 4988.87 |
| Other Income | 2.52 | 2.05 | 5.65 |
| increase/decrease in stock | 0.00 | 695.15 | 5205.88 |
| Total Income | 146.19 | 3609.14 | 10200.40 |
| Total Expenses | 72.31 | 3263.87 | 9845.64 |
| Profit before tax | 73.88 | 345.27 | 354.76 |
| Taxes | 1.44 | 84.55 | 104.73 |
| Net Profit After Tax | 72.44 | 260.72 | 250.03 |
| NET MARGINS | 49.55 | 7.22 | 2.45 |
Comparison
The company has chosen to compare itself with Inducto Steel Limited and Hariyana Ship breakers Limited in the ship breaking industry. In the offshore activity it has compared itself with unlisted entities Global Cambay Marine Services Pvt Ltd and Polestar Maritime Limited.
The segment income from offshore activity is Rs 325.04 lacs in March 2010 and Rs 241.65 lacs in the nine months ended December 2010. I believe this turnover is two small and with a single tug and no objects of the issue talking of expanding this segment to warrant any valuation benefits.
Valuations
The company is asking for a post issue market capitalisation of Rs 61.87 crs at the lower end of the price band and Rs 65.89 crs at the upper band. The net profit in the nine months ended December 2010 was Rs 250.03 lacs and on an annualised basis was Rs 333.37 implying a price earnings multiple of 18.55 times at the lower end and 19.76 times at the upper end of the price band.
Conclusion
The company is very small and does not have a track record in terms of execution or time. The scale of operations is small and it has been changing its core business time and again. The present business is less than three years old and is yet to stabilise. The margins are fairly low and returns for investors in the company seem to be a long time away.
The small cap issues which have come in the last few months have left a lot to be desired post listing. There is no reason why VMS would be an exception and post listing would be available at a substantial discount to the issue price.
As of the end of the penultimate day there is no QIB bid.
SEBI Disclaimer: – I do not intend to subscribe to the above issue.
