Bharatiya Global Infomedia Limited (BGIL) is tapping the capital markets with its IPO for 67.20 lakh shares in a price band of Rs 75-82. The issue opens on Monday the 11th of July and closes on Thursday the 14th of July.
| Price Band | Rs 75 – Rs 82 |
| Offer size in shares | 67,20,000 Equity Shares |
| Issue Size | Rs 50.40 crs at Rs 75 to Rs55.10 crs at Rs 82 |
| QIB’s | 33,60,00 Equity Shares |
| Non Institutional Investors | 10,08,000 Equity Shares |
| Retail Investors | 23,52,000 Equity Shares |
| Book Running Lead Manager | Almondz Global Securities Limioted |
| Isssue Opening Date | Monday 11th July |
| Isssue closing date | Thursday 14th July |
| IPO Grade | CARE grade 2/5 indicating below average fundamentals |
| Paid -up Capital Pre IPO | 91,23,110 Equity Shares |
| Paid -up Capital Post IPO | 1,58,43,110 Equity Shares |
| Market Cap post listing | Rs 118.82 crs at lower band to Rs 129.91 crs at higher band |
| Bid Lot | 75 shares |
| Bidding Amount for Retail | 2400 shares at Rs 82 or Rs 1,96,800 per application |
Business
BGIL is a technology based company focussing on sectors such as Information Technology Security and compliance automation software solutions and technology related to media and entertainment industry with focus on Research and Development.
The current business operations consist of Information Technology Based Solutions – RFID and Smart card and digital post production Studio. The company has in-house developed software ERP product, customised software development, training, consultancy, trading, animation and RFID based solution. The company develops small animated capsules for various projects of the clients.
Objects of the Issue
The objects of the issue are as follows:-
| Setting up of corporate office at Noida and branch at Mumbai | 989.60 |
| Upgradation of Digital Post Production Studio | 1365.46 |
| Investment in IT Division | 839.21 |
| Expansion of R&D technology Centre | 656.73 |
| Repayment of bank Borrowings | 269.72 |
| Meeting long term working capital requirements | 505.00 |
| General Corporate Purposes | |
| Issue Expenses |
Financials
The company has reported revenues of Rs 33.59 crs in March 2009, Rs 46.34 crs in March 2010 and Rs 71 crs in March 2011. The net profit has been Rs 6.86 lacs, Rs 286.90 lacs and Rs 454.79 lacs respectively. What is surprising is that the revenues in the Media and Entertainment division have hardly grown and were a mere 167.21 lacs, 272.23 lacs and 253.31 lacs respectively. Net margins are fairly poor at 6.4% and do not give comfort for a prospective investor.
| Rupees in | Lakhs | ||
| year 2009 | year 2010 | year 2011 | |
| Income from IT Division | 3192.51 | 4361.87 | 6846.47 |
| Income from Media & Entertainment | 167.21 | 272.23 | 253.31 |
| Total revenue | 3359.72 | 4634.10 | 7099.78 |
| Other Income | 0.10 | 0.00 | 4.31 |
| increase/decrease in stock | 0.85 | 2.62 | -3.47 |
| Total Income | 3360.67 | 4636.72 | 7100.62 |
| Purchases | 2608.25 | 3612.56 | 5636.15 |
| Other expenses | 268.27 | 250.22 | 366.29 |
| Total Expenses | 2876.52 | 3862.78 | 6002.44 |
| Profit before tax | 484.15 | 773.94 | 1098.18 |
| Depriciation and amortizarion expenses | 203.28 | 279.84 | 346.30 |
| Financial charges | 83.60 | 91.41 | 75.19 |
| Profit Before Tax | 197.27 | 402.69 | 676.69 |
| Taxes | 190.41 | 115.79 | 221.90 |
| Net Profit After Tax | 6.86 | 286.90 | 454.79 |
| NET MARGINS | 0.20 | 6.19 | 6.40 |
The company plans to invest a sum of Rs 1365.46 lacs in the upgradation of digital post production studio and there has been virtually no growth here.
Valuations
The company reported an EPS of Rs 3.14 for the year ended March 2010 and Rs 2.87 on a fully diluted basis for the year ended March 2011. The price earnings multiple at which the shares are being offered is at 26.13 times at the lower end of the price band of Rs 75 and 28.56 times at the upper end of the price band of Rs 82.
The company has compared itself with Bartronics and Prime focus. Both these companies have substantially large revenues with Bartronics having revenues of Rs 907 crs and a net profit of Rs 118.4 crs. Prime Focus has revenue of Rs 503 crs and a net profit of Rs 88 crs. Both the companies have a net profit which is higher than the turnover of BGIL. The PE multiple of both these companies is in single digits and they enjoy net margins which are significantly higher than BGIL. There is simply no way one can compare these companies.
Risks
The present size of the company is extremely small and the business in which huge investments are being made namely digital studio has almost done nothing in the last three years. The valuation which the company wants is not only unreasonable and unjustified; it leaves no scope for any appreciation. The promoter of the company was managing a company by the name of SRG Infotech Limited during the period 1991-1996. He then became the main promoter of another listed entity ViseshInfotechnics (India) Limited and subsequently became the sole promoter of the company. He resigned from here in 2004 and also sold off his entire shareholding in the company.
The track record of these companies is known and looking at the size, the objects of the issue, the extremely poor margins, one should avoid the issue.
Conclusion
Yet another issue in the mini-cap space with extremely poor fundamentals, very high and unreasonable valuation tapping the capital markets. I believe that the issue should be avoided and the temptation of a quick buck on listing day should also not be looked at.
SEBI Disclaimer:- I do not intend to apply to the above issue.
