Jet Infraventure IPO review by VS Fernando

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Little known Mumbai-registered real estate developer Jet Infraventure Ltd (JIL) has the distinction of being the highest-priced IPO (Rs 125) on the hyper-active BSE-SME platform. While the company’s lackadaisical track makes the valuation absurd, the means adopted by JIL to make itself eligible for BSE listing are baffling.

As per BSE norms, any issuer who seeks listing on the SME platform should satisfy the following three prime criteria besides others: Tangible assets of at least Rs. 1 cr in the latest audited financial results; Net worth (excluding revaluation reserves) of at least Rs. 1 cr; and Track record of distributable profits for at least two out of immediately preceding three financial years.

Look at JIL. The more than a decade-old company’s net tangible assets were negative until fiscal 2013. At the end of March 2014, tangible assets were worth only Rs 53 lakh. But, the company audited its accounts for the single month of April 2014 and boasted of tangible assets worth Rs 1.02 cr!  Also, at the end of fiscals 2012 and 2013, JIL’s net worth was negative. In March 2014 the company’s net worth stood at only Rs 52 lakh. In April 2014 the promoter converted a portion of his unsecured loan into equity so as to have a mandatory net worth of Rs 1 cr!

As per the eligibility norms, JIL should have netted distributable profits in two out of last three years. However, factually, fiscal 2012 ended in loss. Fiscal 2013 failed to register any revenue leave alone earning `distributable’ profit! Through window-dressing of inventories the company posted minor profit while operating cash flow was negative. Though the company boasted of record revenue and profit for fiscal 2014, its operations generated only negative cash flow.

The management has sought to create an impression that, in less than a year ago, JIL issued shares to its promoter at Rs 118 a piece compared to which the IPO price may not look grossly unjustifiable. But, the fact is, the company subsequently rewarded a bumper 7:1 bonus which brought down the average cost of holding of the promoter to less than Rs 10! JIL is asking for a share premium more than Rs 4 cr from the public. But, in 12 years up to March 2014, the company could not earn an aggregate profit of more than Rs 47 lakh!

Background

Originally incorporated as Jet Info (India) Private Ltd in 2001 JIL acquired the “business, assets and liabilities” of Jet Infotech India - a partnership firm of Preethi Mattappilly and Pramoda Shah (one of the present promoters) – which carried out the business of computer education and training. It was in 2010 the company’s name was changed to Jet Infraventure though the company’s present activity is limited to residential realty. JIL’s promoters claim to have about 7 years of experience in real estate industry and boast that the company has grown in size because of their rich experience. Nevertheless, JIL is yet to achieve a respectable level of operation in real estate business and if the past is any indication one cannot be too optimistic about the company‘s prospects.

Governance Issues

JIL’s promoters seem to utterly lack credence in governance. Jet Infotech India was a partnership firm which JIL acquired in 2001. According to JIL’s offer document, the records of the partnership firm including its partnership deed are untraceable! Further, the partners are not aware whether the said firm was registered!! The financials of the firm are also not available and the firm had not filed any income tax returns.

The main objects of JIL as on the date of the prospectus has been approved by the shareholders of the company in the extraordinary general meeting held on July 10, 2010. The certified true copy of the resolution which is filed with the Registrar of Companies is inconsistent with the amended copy of the Memorandum of Association.

JIL’s promoter-director Rajul Shah is a partner in Shubham Associates, Jet Associates and Shree Pancham Associates which are also engaged in similar business similar of JIL.  As these entities do not have any non–compete agreements in place, there is a conflict of interest between the public company and the group entities. This may have adverse effect on JIL’s business and growth.

In August 2014, the annual salary of the husband and wife promoter-directors Rajul Shah and Pramoda Shah has been fixed as Rs 36 lakh and Rs 12 lakh respectively which can be increased by the board of directors to Rs 60 lakh each including other perks. Ironically, in last twelve years (up to March 2014) the company’s profits do not add up to the proposed directors’ remuneration for one year!

OFFER AT A GLANCE
Issuer Name	Jet Infraventure Ltd
Offer Amount	Rs 4.5 cr
Offer Quantity	3.6 lakh shares of Rs 10 each
Offer on Total Equity	34.40%
Post-issue Promoter-stake	62.30%
Post-IPO Capital	Rs 1.05 cr
Offer Price	Rs 125
Application Quantity	1000 & Multiples of 1000
Offer Opens	30-Oct-14
Offer Closes	11-Nov-14
Listing	SME Platform of BSE
Rating	Nil
Lead Manager	Pantomath Capital
Underwriter	Pantomath Capital
Market Maker	Choice Equity Broking
Registrar	Bigshare Services

The Offer
JIL is making a public issue of 3,60,000 equity shares of face value of Rs. 10 each at a price of Rs 125  a share aggregating  to Rs. 450 lakh. The issue constitutes 34.35% of the post-issue capital of the company. Choice Equity Broking will be acting as market maker. Pantomath Capital Advisors, who is appointed as the lead manager to the issue, has underwritten the entire issue.  Investors have to apply for a minimum of 1000 shares or Rs 1,25,000.

Issue Object 
The company proposes to utilize Rs 260 lakh (57.7%) of the issue proceeds for working capital. Rs 88 lakh (19.5%) is to be used for repaying certain unsecured loans and Rs 62 lakh (13.8%) is earmarked for general corporate purposes.

Manager’s Track
JIL’s manager to the IPO, Pantomath Capital Advisors, has so far managed four SME-IPOs – three on BSE and one on NSE. Of the four, only two are regularly traded. The first one, Si.Vi.Shipping, though commanded a premium of over 40% last month, has not been traded since October 1, 2014. The second IPO managed by Pantomath, Women’s next, is still placed around the IPO price even after six months. Ultracab and Momai Apparels that hit the market last month are currently quoting at nominal premiums.

MARKET PERFORMANCE OF PANTOMATH CAPITAL-MANAGED IPOs
COMPANY	IPO	FV	IPO	MKT	PRICE	GAIN
	DATE	Rs	PRICE	PRICE	DATE	%
SI.VI .Shipping	18-Feb-14	10	25	36	01-Oct-14	44
Women's Next	28-Mar-14	10	65	65	22-Oct-14	0
Ultracab (India)	15-Sep-14	10	36	38	29-Oct-14	5.6
Momai Apparels	25-Sep-14	10	78	90.95	29-Oct-14	16.6