Onesource Techmedia: Yet another IPO for 'Guiness Record'- VS Fernando

Even while the first IPO of the fiscal has bombed on the main frame, Kolkata's now famous investment banker, Guiness Corporate Advisors, is introducing its fifth IPO of the calendar year. Incidentally, all the seven issues managed by the merchant banker since September 2012 have gone to the SME Platform of BSE. Surprisingly all these BSE- SME stocks are quoted significantly above the offer prices though they are not in the dividend list, nor have they any credible financial record to speak about.

IPOs MANAGED BY GUINESS CORPORATE
ISSUER	IPO	EQ-CAP	PROM-STAKE %		IPO	CUR.	GAIN
	DATE	Rs Cr	Gross	Core	PRICE	PRICE	%
RCL Retail	27-Sep-12	12.30	22.56	20.02	10	16.00	60.0
Eco Friendly Food	27-Dec-12	9.89	20.41	20.41	25	60.95	143.8
Esteem Bio Org	18-Jan-13	14.90	20.60	20.60	25	54.50	118.0
Sunstar Realty	18-Feb-13	19.93	22.26	0.18	20	29.70	48.5
Channel Nine	22-Feb-13	15.51	20.60	20.60	25	30.30	21.2
HPC Biosciences	01-Mar-13	15.90	22.01	22.01	35	52.30	49.4
Onesource Tech	17-May-13	6.49	43.77	3.84	14

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Most of the SME IPOs took hefty premium from 'public' investors through private placements and virtually wiped out the premium by issuing bonus shares just before floating the IPO.  The bonus shares significantly reduced the cost of Promoters' holding which was abysmally low. The latest to join the bandwagon is Onesource Techmedia Ltd (OTL). Among all Guiness-managed IPOs, OTL has the highest promoter-stake (43.77 percent). Nevertheless, the core promoter, Kishan Kumar Jhunjhunwala, holds just 3.84 percent of OTL's post-issue capital!

As much as 27.28 percent of the Chennai-company's promoter-equity is held by a little known Kolkata-company, SKB Finance Ltd, whose capital is less than Rs 25 lakh and profit is just Rs 4000! Interestingly, listed/public companies like Global Infratech & Finance, First Financial Services, Shubham Communication, etc. hold significant stake in SKB Finance. What does the promoter of OTL, Jhunjhunwala, have to do with these public companies is not known. It's worth noting here that SKB Finance acquired a significant of its stake in OTL from its shareholders, First Financial Services, Global Infratech and Shubham Communication.  The credibility of First Financial and Global Infratech is far from convincing.

The 1980's vintage First Financial was languishing below par even after nineteen years of going public. But, suddenly, this Chennai-based Chartered Accountant-promoted non-dividend paying, miniscule profit-making, company's scrip has shot up to nearly Rs 300 in recent months. Obviously, there ought to be some activity behind the scene.

The 1995-registered Ludhiana-based, Global Infratech's share (Re 1 paid-up) was going abegging at 80 paised in June last year. This scrip whose annualized Dec 2012 EPS was negligible, is suddenly now quoting at 59 times its face value! The promoters of Global Infratech floated two public issues in 1995 under the banners Asian Lakto Industries Ltd and Asian Capital & Finance Ltd. Both of them vanished after the public issue. Suddenly, Asianlak Capital has surfaced in the name of Global Infratech. Even though BSE has not yet acknowledged the name change, it has allowed the share to flare-up in recent times without adequate earnings to support.  It is indeed worth investigating the link between Onesource-First Financial-Global Infratech.

OFFER AT A GLANCE
Issuer Name	Onesource Techmedia Ltd
Offer Amount	Rs 2.8 cr
Offer Quantity	20 lakh shares of Rs 10 each
Offer on Total Equity	30.8%
Post-issue Promo stake	43.8%
Post-IPO Capital	Rs 6.49 cr
Offer Price	Rs 14
Application Quantity	10,000 & Multiples of 10,000
Offer Opens	May 17, 2013
Offer Closes	May 21, 2013
Listing	SME Platform of BSE
Rating	Nil
Lead Manager	Guiness Corporate
Registrar	Purva Sharegistry

Coming to OTL, incorporated in 2008, the company is reportedly engaged in the business of distribution and trading of media contents in the form of audio and video cassettes, compact disks etc. It claims to have entered into royalty agreements with various media houses for marketing the contents of devotional & folk songs, animation movie, Tamil TV serials etc. The company is also involved in event management activities. Nonetheless, in Fiscal 2011 and 2012, the operating cash flow was negative.

Of the issue proceeds (Rs 2.8 cr), OTL proposes to spend Rs 50 lakh on office infrastructure, Rs 100 lakh on development of contents, Rs 50 lakh as deposits for acquisition of contents and Rs 35 lakh on brand building & general corporate purposes. While the company taps capital market for Rs 2.8 cr to fund its business, it has locked-in Rs 2.6 cr in investments whose details are not disclosed in the offer document. Also for a company whose revenue was only Rs 60 lakh in fiscal 2012, the long term media deposit of Rs 3.25 cr looks grossly unjustifiable. Looking at the credibility of most of the BSE-SME IPOs, the possibility of circular funding cannot be ruled out. Another disturbing aspect of OTL is, it has business connections with discredited group like Pentamedia.

Valuation: OTL is offering shares at a price of Rs 14 a piece. Interestingly, the company issued Rs 10 paid-up share in March 2011 at an exorbitant rate of Rs 1000! Having collected more than Rs 4.7 cr premium in 2011, the company issued a 2:1 bonus, capitalizing nearly Rs 3 cr. The bumper bonus brought down the promoter's average cost of acquisition to just Rs 3.33. For a company whose past record is pathetic and credentials are questionable, a small premium of even Rs 4 is unwarranted. If the current return of BSE-SME IPOs is anything to go by, the market maker of OTL may ensure premium over the offer price on listing. But, the quality of BSE-SME IPOs as compared to NSE-SME IPOs does not augur well for the future of Indian Capital Market.