Onelife Capital Advisors IPO – Avoid

In an uncertain global equity market, where the existing players are finding it difficult to sustain the operations, Onelife Capital Advisors (OCAL), a merchant banking company, is tapping the market to raise funds in the range of Rs 33.50 crore to Rs 36.85 crore. The price band fixed by the company is Rs 100 to Rs 110, and the minimum bid lot size for the issue is of 50 equity shares and in multiples thereafter. The lead manager for the company is Atherstone Capital Markets. The issue opens on September 28, 2011, and closes on October 4, 2011. The promoters plans to dilute 25.07 per cent of their stake.

The objective of the issue is to:

- Purchase a corporate office at Mumbai (worth Rs 7 crore)
- Develop Portfolio Management Services (Rs 11.57 crore)
- Brand building activities (Rs 7.7 crore)
- General corporate purposes and issue expenses

Business Overview

OCAL currently offers Investment Banking Services, and plans to venture into Portfolio Management and Equity Broking Services, for which it is planning to raise funds. It is a SEBI-registered merchant banker, and has received licenses for its Equity Broking business from BSE, and the SEBI’s approval for providing Portfolio Management services.

As on July 15, 2011, the company has signed nine mandates for fundraising through the IPO route, and two mandates for Joint Ventures. It offers services like Initial Public Offerings, Rights Issue, Buy Back of shares, Follow on Public Offers, Qualified Institutional Placements, Open Offers, Private Equity Placements, arranging for FCCB/Global Debt and for Local Debt Syndication.

OCAL has signed mandates, which is just an initial step for bringing in the IPO, and therefore it may take time monetise the same. The company is also planning to enter the Portfolio Management and Broking business, in which it has no past experience. It does not have any client base till now. OCAL expects to start its new business in six months. However, in view of the current market scenario, we feel that execution of the same may take time, and there could be delays that impact the financial performance. The broking industry itself is facing tough times, and the larger and experienced players are making it a highly competitive market.

The company has suffered losses in past, and has a negative Return on Net Worth. It is also commanding a price to book value of 7.65x (assuming the share price of the company is Rs 110), which is higher than its peers that command in the range of 0.50 to 1.50x (See Table: OCAL Comparison With Peer Group). Further, the broking firms have also yielded negative returns on a Year-to-Date basis (Edelweiss down 42 per cent, Almondz Global down 55 per cent and India Infoline down 16 per cent).

Financial Performance

The financials of OCAL show extremely poor numbers. Its operating income decreased by 40 per cent to 37 lakhs for FY11, while it incurred a loss of 60 lakhs from 4.51 lakh profit for FY10. This was due to the expenses of the staff and administration, which increased by 137 per cent to 49.83 lakh and by 182 per cent to 48.41 lakh respectively. Also, the company has a negative cash flow from its operating and investing activities in the FY08, FY10 and FY11 and from its financial activity in FY09.

Further, the raised funds will be utilised for its registered office and for the development of its Portfolio Management service. We do not expect any value addition from these factors in the immediate future. With a weak management (with a history of litigations), poor and loss making financials over the past four years and poor sentiments in the broking business, we clearly recommend avoiding this IPO.

OCAL Comparison With Peer Group:

Issue Information