OFFER AT A GLANCE
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Name
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Anshu's Clothing Limited
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Offer Amount
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Rs 5.05 cr
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Offer Quantity
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18.72 lakh shares of Rs 10 each
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IPO on Total Equity
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30%
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Post-IPO Free Float
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31.9%
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Post-IPO Capital
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Rs 6.23 cr
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Offer Price
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Rs 27
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Application Quantity
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4000 & Multiples of 4000
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Offer Opens
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September 26, 2012
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Offer Closes
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September 28, 2012
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Listing
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SME Platform of BSE
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Lead Manager
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First Call
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Registrar
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Cameo Corporate
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The Offer
Fresh issue of 18,72,000 equity shares of Rs 10 each at a price of Rs 27 a piece aggregating to Rs 5.05 cr. The issue will constitute 30% of the fully diluted post-IPO equity capital of the Company. The lead manager, First Call India Equity Advisors Private Ltd has underwritten 3,00,000 equity shares (16.03% of the issue size) and the balance 15,72,000 equity shares (83.97%) has been underwritten by the "Market Maker", Oswal Shares And Securities Ltd. Minimum application has to be for 4000 shares or Rs1,08,000.
Issue Object
The main object of the IPO was to provide Rs4.7 cr long term finance for procuring materials required for business operations. However, the funding requirements and deployment of the issue proceeds have not been independently appraised by any bank or financial institution. In fact the management has explicitly stated that they may have to revise the funding requirements and utilization schedules depending on variety of factors prevailing post-issue.
Issuer's Lineage
The people behind the issuer-company are first generation promoters whose credentials are yet to be tested by the investing public. Though going public for the first time, the company was incorporated as early as 1995. At the time of incorporation it was known as Black Star Products which was changed to Maruti Dyechem in 1998 to diversify into Dyes and Intermediates. The name was further changed to Anshu's Clothing in 2007 in order to enter into garment business. In other words, the company has already changed its business track twice.
The public company’s board consists of two promoters, Ravi Bhandari (42) and his spouse Rekha Bhandari (37), and three non-executive independent directors who are only in the twenties. The promoters claim to have one more group company, Lolipop Fashions (P) Ltd, and a partnership firm, A.M. Energy Systems whose track and financials are far from convincing.
Business Profile
Anshu's Clothing Ltd (ACL) is reportedly operating in the fast growing women’s exclusive ethnic wear, women’s casual wear and Kids wear segments. ACL's activity includes designing, trading, job contract manufacturing, branding and selling of ready-made apparels under brands promoted in the name of company and its promoters.
ACL operates mainly through exclusive brand outlets (EBOs) for trading of readymade garments. The company has chosen this model to concentrate more on the quality and thereby be relieved of external marketing pressures.
As on 30th June, 2012, the company claims to have established 41 exclusive "Lolipop" brand outlets for kids wear and 15 "Anshu's Designer Studio" outlets for women wear. Currently it is in the process of launching "Kalamkari" exclusive brand outlets for women.
As on 30th June, 2012, the company claims to have established 41 exclusive "Lolipop" brand outlets for kids wear and 15 "Anshu's Designer Studio" outlets for women wear. Currently it is in the process of launching "Kalamkari" exclusive brand outlets for women.
Nonetheless, not all the so called exclusive brand trade marks are registered by the company or its promoters. As such, the inability or failure to protect the Trademark may adversely affect ACL's business goodwill on account of possible misuse by any third party.
Financial Performance
Even though more than seventeen years old, ACL's profit for the last five years do not add up to even Rs 1 cr! The company’s turnover jumped from Rs 11.75 cr in fiscal 2011 to Rs 27.79 cr in 2012. But, its bottom line improved by only Rs 12 lakh! ACL's operating margin is abysmally low at less than 7%. Though reported a profit of Rs 38 lakh in 2011 and Rs 50 lakh in 2012, net cash generation from operations were negative at Rs2.18 cr and Rs4.78 cr respectively. The company has not paid any dividend till date. Given the present profitability (as compared to the post-IPO equity of Rs 6.23 cr), the premium issue is unlikely to fetch any dividend in the near future.
Valuation
The pricing of ACL share is quite intriguing. In August 2010 the company priced its share at Rs 300 and allotted 40000 shares to a body corporate, collecting Rs 60 lakh on application. Strangely, the subscriber refused to pay the allotment money and forfeited the entire Rs 60 lakh already paid! Whereas the previous three placements made between 2005 and 2010 were at a premium, the company enlarged the capital from Rs 49.50 lakh to Rs 126 lakh in 2011 by offering shares at par to the promoters. Within 8 months since issuing at par to promoters, ACL priced its share at an exorbitant rate of Rs 500 to a group company of the promoters and collected Rs 9.45 cr premium. Of this premium, ACL issued a two for one bonus capitalizing Rs 2.91 cr. Post-bonus, while the group company Lolipop Fashions’ cost worked out to Rs166.67 per share, the core promoters Bhandaris’ average cost amounted to less than Rs 2.50 a share!
Perhaps, for a 17 year-old company, a premium of Rs 17 may not look steep. But, the company’s poor fundamentals, the industry’s lackadaisical discounting and the promoters’ questionable credentials would advise one to tread cautiously.
How Anshu's compares with Readmade Garment Peers
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SCRIP
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M-CAP
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P/E
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P/BV
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P/FV
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P/R
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OPM
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P/NB
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YLD
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PRICE
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(Rs Cr)
|
(x)
|
%
|
(x)
|
%
|
(Rs)
| ||||
Kitex Garments
|
286
|
7.6
|
2.7
|
60.2
|
1.0
|
22.1
|
2.3
|
1.0
|
60.20
|
Sudar Garments
|
173
|
12.8
|
1.5
|
9.3
|
0.7
|
14.6
|
1.8
|
0
|
93.05
|
Indian Terrain
|
34
|
19.1
|
1.6
|
6.2
|
0.2
|
9.0
|
3.8
|
0
|
61.50
|
Bang Overseas
|
25
|
-
|
0.3
|
1.9
|
0.2
|
4.0
|
1.1
|
0
|
18.60
|
GIVO
|
19
|
40.1
|
0.7
|
0.8
|
1.1
|
7.2
|
2.4
|
0
|
2.34
|
Samtex Fashions
|
18
|
93.8
|
0.4
|
1.8
|
0.3
|
8.7
|
0.8
|
0
|
18.00
|
Suditi Industries
|
16
|
48.7
|
0.6
|
0.9
|
0.4
|
3.5
|
2.4
|
0
|
9.15
|
Celebrity Fashions
|
10
|
-
|
-
|
0.5
|
0.1
|
2.2
|
11.9
|
0
|
4.91
|
Gagan Polycot
|
7
|
15.6
|
1.6
|
1.7
|
0.2
|
1.5
|
13.3
|
0
|
16.65
|
5
|
6.3
|
0.3
|
1.2
|
0.4
|
8.5
|
1.8
|
6.3
|
11.89
| |
Anshu's Clothing
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17
|
20.9
|
0.9
|
2.7
|
0.6
|
6.7
|
7.2
|
0
|
27.00
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Source:
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Manager's Track
The Ahmedabad-registered Anshu’s Clothing has appointed the Mumbai-based First Call India Equity Advisors as lead manager and the Chennai-based Cameo Corporate as registrar to the issue. Interestingly, the lead manager to Anshu’s offer has underwritten only 16% of the issue while another little known “market maker” has committed for 84%! What’s the track record of the investment banker? Anshu’s is the maiden IPO assignment for the lead manager. Had they been associated with any other merchant banker earlier? When this question was posed to the lead manager, its representative V.S.R Sastry lost his temper! Subsequently, his brother Dr V S N Sastry volunteered to make some clarifications. Some pertinent questions were posed to Dr. Sastry too. He promised to revert back soon but, did not come back till the twelfth hour.
Unanswered Queries
Following are the queries posed to the lead manager who claims to have done the due diligence on Anshu’s Clothing:
1. Only a year ago the promoters (Ravi Bhandari and Rekha Bhandari) resigned from Rupali Enterprises (P) Ltd. Why did they exit and who controls the company now?
2. About the promoters’ group ventures, the offer document claims, “there is only one group company i.e. Lolipop Fashions (P) Ltd and one partnership firm M/s A.M. Energy Systems”. However, Anshu's stake in the partnership firm is only 25%. The balance 75% is held by Manglalaxmi Industries (P) Ltd. Who owns or controls Manglalaxmi?
3. Lolipop Fashions, which will hold 9% of Anshu’s post-issue equity, has a capital of just Rs 16.59 lakh. Interestingly, this company has reserves worth more than Rs 448 lakhs. Obviously most of the reserves came through premium. The company whose profit is not even Rs 1 lakh, who contributed a premium of Rs 270 per share?
4. More than 86% of Lolipop’s capital is held by the Bhandaris and 13.4% is held by other corporate entities. Who are these corporate entities? Has Anshu’s Clothing invested in Lolipop at an unjustifiable premium and in turn Lolipop invested in Anshu’s at Rs 500 per share?
5. The offer document claims Anshu has invested Rs 4.5 cr in the partnership firm AM Energy System. When Anshu’s stake in the partnership firm is only 25% in a capital of Rs 4.5 cr, how did Anshu’s invest Rs 4.5 cr in the partnership?
6. As per the offer document, Anshu’s has also invested Rs 5 cr in unquoted shares. Whose company’s shares are they?
7. They say A.M. Energy is engaged in business to generate conventional and non-conventional energy, power, etc. But, the partnership firm’s entire capital of Rs 4.5 cr is locked in investments! Where has the firm invested?
8. In August 2010, Anshu’s allotted 40000 shares to a body corporate at a price of Rs 300 per share (Rs 10 paid-up) and collected 50% (Rs 60 lakhs) on application. As per the offer document, after giving due notices in respect of unpaid call money the shares were forfeited in December 2011. Which is the body corporate that chose to forego the application money of Rs 60 lakhs?
2. About the promoters’ group ventures, the offer document claims, “there is only one group company i.e. Lolipop Fashions (P) Ltd and one partnership firm M/s A.M. Energy Systems”. However, Anshu's stake in the partnership firm is only 25%. The balance 75% is held by Manglalaxmi Industries (P) Ltd. Who owns or controls Manglalaxmi?
3. Lolipop Fashions, which will hold 9% of Anshu’s post-issue equity, has a capital of just Rs 16.59 lakh. Interestingly, this company has reserves worth more than Rs 448 lakhs. Obviously most of the reserves came through premium. The company whose profit is not even Rs 1 lakh, who contributed a premium of Rs 270 per share?
4. More than 86% of Lolipop’s capital is held by the Bhandaris and 13.4% is held by other corporate entities. Who are these corporate entities? Has Anshu’s Clothing invested in Lolipop at an unjustifiable premium and in turn Lolipop invested in Anshu’s at Rs 500 per share?
5. The offer document claims Anshu has invested Rs 4.5 cr in the partnership firm AM Energy System. When Anshu’s stake in the partnership firm is only 25% in a capital of Rs 4.5 cr, how did Anshu’s invest Rs 4.5 cr in the partnership?
6. As per the offer document, Anshu’s has also invested Rs 5 cr in unquoted shares. Whose company’s shares are they?
7. They say A.M. Energy is engaged in business to generate conventional and non-conventional energy, power, etc. But, the partnership firm’s entire capital of Rs 4.5 cr is locked in investments! Where has the firm invested?
8. In August 2010, Anshu’s allotted 40000 shares to a body corporate at a price of Rs 300 per share (Rs 10 paid-up) and collected 50% (Rs 60 lakhs) on application. As per the offer document, after giving due notices in respect of unpaid call money the shares were forfeited in December 2011. Which is the body corporate that chose to forego the application money of Rs 60 lakhs?
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