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Dismal track record of IPOs managed by Corporate Strategic Allianz apart, the manner that the selling shareholder has been favoured by the company raises serious doubts. It is high time Sebi insists on disclosure of selling shareholders’ background in the offer document.
| OFFER AT A GLANCE | |
| Name | NCML Industries Ltd |
| Quantum | Offer for Sale of 60 lakh shares |
| Offer % on Total Equity | 25.48% on Rs 23.55 cr |
| Post-IPO Promoter Stake | 47.40% |
| Offer Price | Between Rs 100 and Rs 120 |
| Offer Amount | Between Rs 60 cr and Rs 72 cr |
| Fresh Issue Amount | NIL |
| Application Quantity | 125 & Multiples of 125 |
| Bid/Offer Opens | 29-Dec-14 |
| Bid/Offer Closes | 02-Jan-15 |
| Rated By | ICRA |
| Rating | 3 out of 5 |
| Book Running Lead Manager | Corporate Strategic Allianz |
| Registrar | Satellite Corporate Services |
The New Delhi-registered NCML Industries Ltd is facilitating an offer for sale of 60 lakh shares for the benefit of three existing shareholders of the company, namely, Mohit Nidhi Agro Oil, Sundaram Distributors and Jagprem Vyapaar. These three private limited companies are classified as public shareholders by NCML. Who are the promoters of these three closely-held entities? The offer document does not reveal the background of the selling shareholders.
NCML’s management claims that the selling shareholders were no way connected to the promoters and they were just the initial investors of the company. Nonetheless, the offer document reveals that Mohit Nidhi is the single largest shareholder (with 4 lakh shares) of NM Agro which is touted as the promoter-company of NCML! As a matter of fact, whereas NM Agro holds 29.6% of NCML’s equity, its principal shareholder, Mohit Nidhi, is the second largest shareholder of NCML with 19.5%.
The way that the `public shareholder’ Mohit Nidhi acquired shares in NCML is quite interesting. On March 31, 2010, eight closely-held companies (whose ownership is not disclosed) collectively sold 4.8 shares at just par value to the so called `angel investor’ Mohit Nidhi. Six months later, on October 10, 2010, NCML came out with a bumper bonus issue in the ratio of 3:1 and gifted 14.4 lakh shares. After twenty one days, on October 31, 2010, Mohit Nidhi was allotted 3.2 lakh shares at a price of Rs.125 a piece. Surprisingly, same day, the company came out with another bonus issue in the ratio of 1:2 gifting additional 11.2 lakh shares to Mohit. (Heard of two bonus issues in just three weeks?)
Eight months later, on June 30, 2011, the company allotted 12.4 lakh shares to Mohit at Rs 125 each. In other words, Mohit Nidhi Agro is currently holding 46 lakh shares of NCML at an average price of Rs.43 a piece of which, it is offering for sale of 34.62 lakh shares at a price band of Rs 100-120. What’s more intriguing is Jagprem Vyapaar and Sundaram Distributors who acquired the shares at Rs 125 each in 2012 are currently offering at a discounted price!
NCML Background
NCML Industries Limited is said to be the flagship of NCML group controlled by the Delhi-based Jains. The group reportedly started business activities way back in 1960‘s by trading of edible oils, Vanaspati ghee, etc. under the proprietorship of Shri Newal Chand Jain. Mohan Lal Jain joined the said business of his father and ran the business as proprietorship till 1996. During the period Rajnish Jain and Manish Jain, sons of Mohan Lal Jain, started a partnership firm under the name and style of Newal Chand Mohan Lal & Co for trading of edible oil, Vanaspati ghee, and allied commodities. Newal Chand Mohan Lal Jain Private Limited was incorporated in September 1996 to takeover the promoters’ proprietorship firm. The name of this company was changed to NCML Exim Private Ltd in April 2007 and further to NCML Industries (NCML) in October 2010.
In the FY 1999-00, the group’s first brand MAANIK was launched by the partnership firm for refined vegetable oil. NCML, which was mainly engaged in trading of Palm oil, Soya bean oil, Mustard oil, etc., started importing the Vanaspati Oil in FY 2003-04. Meanwhile NCML’s promoter company, N M Agro (P) Ltd, registered the brands SHAN (for edible oil, edible fats and preserves) and MOTI (for refined Mustard Oil).
In the FY 1999-00, the group’s first brand MAANIK was launched by the partnership firm for refined vegetable oil. NCML, which was mainly engaged in trading of Palm oil, Soya bean oil, Mustard oil, etc., started importing the Vanaspati Oil in FY 2003-04. Meanwhile NCML’s promoter company, N M Agro (P) Ltd, registered the brands SHAN (for edible oil, edible fats and preserves) and MOTI (for refined Mustard Oil).
Till February 2012, a part of NCML’s retail distribution was carried out by its promoter company under the aforesaid brands. NCML’s refinery with an installed capacity of 350 TPD in U.P. commenced production in the last quarter of FY 2011-12. During FY 13-14, NCML increased its installed capacity by 250 TPD and the additional capacity became operational during the last week December 2013.
A noteworthy aspect of NCML is that the brands are not owned by the company and no formal agreements are executed with group companies for using the brands. Any dispute with the group companies for using brand will hamper the business of the company in retail market and thereby affect the operations and financial position of the company.
In fact, the company’s logo itself is owned by a group company. What’s more, some of the group companies are engaged in related activity which may restrict the growth prospects of the public company. NCML has also entered into number of related party transactions, which may involve conflict of interest. Further, as of June 30, 2014, the public company has given corporate guarantee amounting to Rs 85 cr on behalf of group companies to lenders like ICICI Bank and Oriental Bank of Commerce for the debt facilities given to the closely-held group companies.
Financial Track
Though sounds like a manufacturing company, the 18-year old NCML’s operations are still dominated by trading. However, despite operating with thin margins, the company has posted impressive financials in last three years. NCML’s top line has surged from Rs 1047 cr in FY11 to Rs 2749 cr in FY14. Operating profit has grown from Rs 46 cr in 2011 to Rs 137 cr in 2014. Net profit has leapt from Rs 14 cr to Rs 55 cr. Earnings per share in fiscal 2014 amounted to an impressive Rs 23.45. Nevertheless, the company’s operations could not generate positive cash flow during last three years. No wonder the company has chosen not to pay any dividend. Further, significant increases in the company’s trade receivables and inventories make the profitability suspect.
Though sounds like a manufacturing company, the 18-year old NCML’s operations are still dominated by trading. However, despite operating with thin margins, the company has posted impressive financials in last three years. NCML’s top line has surged from Rs 1047 cr in FY11 to Rs 2749 cr in FY14. Operating profit has grown from Rs 46 cr in 2011 to Rs 137 cr in 2014. Net profit has leapt from Rs 14 cr to Rs 55 cr. Earnings per share in fiscal 2014 amounted to an impressive Rs 23.45. Nevertheless, the company’s operations could not generate positive cash flow during last three years. No wonder the company has chosen not to pay any dividend. Further, significant increases in the company’s trade receivables and inventories make the profitability suspect.
| NCML'S FINANCIAL PERFORMANCE | |||
| (Rs.Cr) | Mar-14 | Mar-13 | Mar-12 |
| Trading Revenue | 1640.38 | 1287.55 | 1644.16 |
| Manufacturing Revenue | 1104.6 | 677.91 | 9.64 |
| Electric Generation | 3.98 | 3.92 | 2.23 |
| TOTAL REVENUE | 2748.96 | 1969.38 | 1656.03 |
| Other Income | 18.31 | 27.28 | 36.47 |
| GROSS INCOME | 2767.27 | 1996.66 | 1692.5 |
| OPERATING PROFIT | 136.79 | 115.18 | 80.34 |
| OPERATING MARGIN (%) | 4.3 | 4.5 | 2.6 |
| NET PROFIT | 55.22 | 45.36 | 32.76 |
| Equity Capital | 23.55 | 23.55 | 21.02 |
| Reserves | 266.66 | 211.43 | 169.41 |
| NET WORTH | 290.21 | 234.98 | 190.43 |
| NET BLOCK | 94.3 | 81.11 | 75.01 |
| EARNING PER SHARE (Rs) | 23.45 | 19.26 | 15.59 |
| BOOK VALUE (Rs) | 123.23 | 99.78 | 90.59 |
Valuation
NCML’s Rs 10 paid-up shares are being offered at a price between Rs 100 and Rs 120 which discounts the company’s last fiscal earnings 4.3 to 5.1 times. In terms of Price-Earnings and Price-Book Value NCML’s offer price compares reasonably well with its edible oil peers. But, will the price sustain post-listing, especially in the absence of dividend? Some of the dividend-paying peers in the industry are currently priced only about six times their earnings.
NCML’s Rs 10 paid-up shares are being offered at a price between Rs 100 and Rs 120 which discounts the company’s last fiscal earnings 4.3 to 5.1 times. In terms of Price-Earnings and Price-Book Value NCML’s offer price compares reasonably well with its edible oil peers. But, will the price sustain post-listing, especially in the absence of dividend? Some of the dividend-paying peers in the industry are currently priced only about six times their earnings.
The lousy profitability of the industry and the track record of last high-priced IPO in the industry do not exude much optimism. Gokul Refoils, which was offered at Rs 195 (10 paid-up) in the year 2008, is currently languishing at only about Rs 15 (2 paid-up) inflicting a capital loss of 60%!
| HOW NCML COMPARES WITH EDIBLE OIL PEERS | |||||||||
| CO_NAME | M-CAP | EQ | P/E | P/BV | P/R | OPM | YLD | FV | PRICE |
| (Rs Cr) | (x) | (%) | (Rs) | ||||||
| Agro Tech Foods | 1,443 | 24.37 | 34.3 | 5.1 | 1.9 | 9 | 0.3 | 10 | 592.05 |
| Ruchi Soya Indus | 1,239 | 66.81 | 117.8 | 0.6 | 0 | 1.8 | 0.9 | 2 | 37.1 |
| Gujarat Ambuja Expo | 666 | 27.67 | 6 | 0.9 | 0.2 | 6.9 | 1.5 | 2 | 48.15 |
| Vimal Oil & Foods | 359 | 15.02 | 20.9 | 2.7 | 0.2 | 3.1 | 0.5 | 10 | 239.2 |
| JVL Agro Industries | 332 | 16.79 | 5.4 | 0.7 | 0.1 | 2.7 | 1 | 1 | 19.8 |
| Sanwaria Agro Oils | 269 | 34.81 | 11.2 | 1 | 0.1 | 3.5 | 0 | 1 | 7.73 |
| Rasoya Proteins | 255 | 170.89 | 7.9 | 0.6 | 0.2 | 6.7 | 0 | 1 | 1.49 |
| Gokul Refoils | 206 | 26.38 | 16.4 | 0.6 | 0 | 0.9 | 0 | 2 | 15.6 |
| NCML - Hi Band | 283 | 23.55 | 5.1 | 1 | 0.1 | 4.3 | 0 | 10 | 120 |
| - Low Band | 235 | 23.55 | 4.3 | 0.8 | 0.1 | 4.3 | 0 | 10 | 100 |
Manager’s Track
The book-running lead manager of NCML’s offer, Ahmedabad-based Corporate Strategic Allianz (CSA), has associated with five IPOs in three years (2011-2013). In 2011 CSA managed three issues – all were offered on the main frame. In 2013 it introduced two IPOs to BSE’s SME platform. Incidentally, none of the IPOs brought out by CSA is currently quoting above the offer price even in this bullish market. The reason is not far to fetch. Though all the issues were at premium, the issuers’ credentials were far from convincing. This was well reflected in the post-issue performance of the companies too. Will NCML break the lead manager’s jinx?
| CORPORATE STRATEGIC ALLIANZ MANAGED ISSUES | |||||
| CO_NAME | IPO DATE | IPO PRICE | 52-WK LOW | CURRENT PRICE | GAIN % |
| Timbor | 30-May-11 | 63 | 4.96 | 5.8 | -90.8 |
| Rushil Decor | 20-Jun-11 | 72 | 38.55 | 55.6 | -22.8 |
| Indo Thai Sec | 30-Sep-11 | 74 | 10.51 | 14.73 | -80.1 |
| Ace Tours | 09-Sep-13 | 16 | 11.42 | 11.42 | -28.6 |
| Amrapali Capital | 15-Oct-13 | 100 | 24.1 | 36 | -64 |
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