To subscribe or not--Infibeam IPO

Online shopping portal, Infibeam Incorporation is India’s first e-commerce company to tap the potentials of the capital markets on Monday through its Initial Public Offering (IPO). According to data available with Bombay Stock Exchange (BSE), the qualified institutional buyers portion was subscribed 0.22 times, with all the bids coming in from foreign institutional investors, while the retail portion was subscribed 0.17 times.

The Ahmedabad based e-commerce company was founded by former Amazon executive Vishal Mehta. The company is looking to raise Rs 450 crores. The company has fixed the price band at Rs. 360 - 432 per equity share for the initial public offer (IPO). The initial share-sale programme will conclude on March 23. It competes with Flipkart, Amazon, Snapdeal and others in the e-commerce space. It will become the first E-commerce company in India to tap the IPO route.

Infibeam has two main businesses – the e-commerce marketplace called BuildaBazaar.com and the e-tailing business under infibeam.com.

BuildaBazaar.com manages and helps other players set up their e-commerce venture. It uses data analytics to help merchants target consumers and increase the rate of conversion from visits to transactions. This segment gives the company its competitive advantage. On the other hand, Infibeam.com is just like any other e-commerce retailer. It contributed about 72 percent of consolidated revenue for the six months ending September 2015, but margins were only one percent in this period.

The proceeds from IPO will get utilise towards setting up of cloud data centre and shifting and setting up of registered and corporate office of the company. Further, the funds will be used for setting up of 75 logistics centres, purchase of software and for other general corporate purposes.

On financial front, the company turned profitable in the first six months of 2015-16. It posted revenue of Rs.171.3 crore and a net profit of Rs.6.6 crore for the six months ended September 2015. It reported revenue of Rs.288.2 crore at a net loss of Rs.9.8 crore for the year ended 31 March 2015.

But more interesting part is the firm eyeing a hefty valuation of Rs 2,250 crore. This is 7.6 times its March 2015 revenue and 167.34 times its profit. If look deeper, Infibeam’s valuation is only marginally less than that of Flipkart – India’s largest e-commerce company . So the valuation part is looking substantially overpriced.

Because of the same, the IPO even before hitting the markets sparked off controversies as two of the four domestic investment banks opted out on concerns over pricing and the timing of the issue. Kotak Mahindra Capital and ICICI Securities withdrew as bankers to the issue. SBI Capital Markets Ltd and Elara Capital (India) Pvt. Ltd are the only two bankers managing the offer currently.

On the basis of excessive valuations, recent exit of two lead bankers and in the absence of external investments we recommend to our shareholder that they may like to avoid investing/participating in the IPO.