BCB Finance IPO: Exit On Listing Day

DSIJ Intelligence / 10 Mar 2012

Our advice to all the investors would be to exit BCB Finance (if subscribed) on the listing day. We don’t have much confidence in the company given its projections of business growth and the very high valuations.
BCB Finance, a small enterprise, had tapped the market to raise funds worth Rs 8.85 crore through the IPO route. As per the lead manager, the issue was subscribed 1.09 times and the tentative listing of the issue is on March 13, 2012. Of the total subscription, the retail portion was subscribed 0.66 times while the non-institutional portion was subscribed 1.53 times. The market maker portion was also fully subscribed.  

One of the reasons why the IPO had received poor response from the retail investors could be the minimum application of the issue which was of 4,000 equity shares at Rs 25 (Rs 1,00,000).

In our analysis of the IPO we had clearly advised avoiding the issue. One of the reasons behind this was the higher valuation. On a post-issue basis the adjusted EPS for FY11 stands at Rs 0.19 and with the issue price of Rs 25 its price-to-earning works out to 131x versus the industry average at 11.50x.

Further, the company is very small in size and in fact does not seem to be well-placed. It does not have its own office and the logo and trade name used by the company are not registered. The poor creditability of the management and its muted business outlook could further affect the company. 

There could be some speculative gain on the listing day as it will be the first one to be listed on the SME Exchange. Our advice to all the investors would be to exit the counter (if subscribed) on the listing day. We don’t have much confidence in the company given its projections of business growth and the very high valuations.