Monarch Health IPO: Who is the real promoter of company? : Moneycontrol

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By VS Fernando, IPO Analyst at India Aarthik Research

Monarch Health : Fit case for a closer scrutiny of promoter antecedents, by Sebi 

Issue Details

Mumbai-based Monarch Health Services Ltd (MHSL) proposes to offer public 15 lakh equity shares of Rs 10 each at a fixed price of Rs 40 a piece aggregating to Rs 6 crore.  Of the public portion, 3 lakh shares are reserved for the market maker. The shares are proposed to be listed on the SME Platform of Bombay Stock Exchange (BSE). Minimum subscription for the retail applicant is 2500 shares, or Rs 1 lakh.

OFFER AT A GLANCE
Name	Monarch Health Services Ltd
Offer Quantity	15 lakh shares of Rs 10 each
Post-IPO Public Holding	74.9%
Offer Price	Rs 40
Offer Amount	Rs 6 cr
Application Quantity	2500 & multiples of 2500
Offer Opens	May 12, 2012
Bid/Offer Closes	May 16, 2012
Listing	SME Platform of BSE
Rating	Nil
Lead Managers	Networth Stock Broking Ltd
Registrars	Sharepro Services

Issue Object

The company proposes to come out with a chain of 100 skin care and cosmetic clinics across India in the next four years. It claims to have already commenced operations in two clinics in Mumbai and plans to commence operation in three more clinics -one each in Delhi (in April 2012), Goa (in May 2012) and Haridwar (in latter half of 2012) with the funds raised prior to the public issue.

With the funds to be raised through the present issue and promoters’ contribution aggregating to Rs 12 crore the company proposes to set up another twenty three clinics (7 in Tier I Cities, 8 in Tier II Cities and 8 in Tier III Cities) during the year 2012-13.

People Behind

According to the IPO document, MHSL was incorporated in October 2011 by the Mumbai-based cosmetologist Dr Nishita Sheth along with dermatologist Dr. Prashant Vikram and they were later joined by the Pune-based surgeon Dr. Ajit Kadam. But, ironically, at the time of signing the offer document, the so called promoters held less than 12% of the then capital! Knowledgeable sources reveal the broking arm of the company’s investment banker had canvassed for subscription (under the guise of private placement) and roped in more than 60 high net worth investors to buy a stake in the pre-issue equity capital. 

There appears to be a curious link between Networth Stock Broking Ltd, the lead manager to the issue and the company.  When incorporated in October 2011, Monarch Health had its registered office at the same building Networth Stock is housed. Interestingly, before the incorporation of Monarch Health, the investment banker had two companies in the name of Monarch viz. Monarch Research & Brokerage Private Ltd and Monarch Project & Finmarkets Ltd, which were merged with Networth Stock last year. Pritesh Doshi, executive director of Monarch Health was earlier working with Monarch Project & Finmarkets as a “dealer”. What’s more, Networth’s director Sanjay Motta is the auditor of Monarch Health!

While Monarch Health’s compliance officer, Priyanka Manghwani, is not sure of the identity of the company’s auditor, a junior staff of the company is confidently saying that Monarch Health and Monarch Project belong to the same group!  So who is the real owner of the company?

Valuation

Even though MHSL is asking a premium three times its face value, the eight-month old company is yet to find a footing on the operational front.  For the period between October 2011 and March 2012 the company posted a revenue Rs15 lakh and incurred a loss of Rs 44 lakh. Looking at the company’s background one cannot be optimistic about its future. The so called promoter-doctors have got the shares at par value (Rs10). The promoters’ overall cost of holding works out to less than Rs 34 for their 25% stake in the company while public shareholders would shell out Rs 40 a piece.  

Concerns

- Company with dicey fundamentals 
- Uninspiring stake by the promoters
- Conflict of interest with promoters and their group companies
- Net worth of promoters’ existing companies fully eroded 
- IPO designed to help select cronies of the investment banker