GCM Securities To Arrive With An IPO

GCM Securities (GCM) is another company wishing to list its equity shares on the Indian bourses. The company is coming up with a public offering on 18 March 2013 and will close on 20 March 2013, at a fixed price issue of Rs 20 per share. The issue size includes 60.90 lakh equity shares at a face value Rs 10 each. The issue is offered for listing on the BSE SME platform. The company is expected to raise a fund of Rs 1,218 lakh through this issue. It will constitute of 3.30 lakh equity shares reserved for market makers while the remaining 57.60 lakh equity shares would be the net issue for the public. The minimum allotment size for this public issue is 6000 equity shares and its multiples. A total of 129 lakh equity shares will be issued, thus taking the number to 189.90 lakh equity shares after the issue.

GCM was formed in the year 1995 as a public limited company. At present, the company is engaged in the business of investment, trading and broking activities. It is a corporate member of the NSE and BSE under the capital market segment and is acting as a self-clearing member under the F&O segment. Initially, the company was involved in the business of retail broking. With the entry of the F&O segment in the capital market, it became a self-clearing member under this segment. The company currently serves the high net worth individuals (HNIs). 

Also, the company invests in both quoted and unquoted securities and derivatives. It is involved in proprietary investments in tradable securities too. Further, GCM has recently raised an amount of Rs 1,914 lakh from its promoters and strategic investors by issuing 95.70 lakh equity shares. The raised funds are expected to be utilised in the establishment of branch offices, acquiring the membership of CDSL, setting up of its merchant banking division, and in brand building and strengthening its management team. 

Moreover, GCM intends to utilise the IPO proceeds of Rs 1,218 lakh in augmenting long-term working capital requirements along with meeting the issue expenses. The fund will be used in maintaining margins with the stock exchanges. It will constitute both initial margin and additional margin. 

On the financial front, GCM showed revenue growth of Rs 392.86 lakh in the September ended quarter of FY13 as compared to Rs 72.77 lakh in the similar quarter last year. The revenue mainly increased due to an increase in profits from the sale of long-term investments, which amounts to almost Rs 355.80 lakh. Its main business of broking activity is however not doing well. 

The company posted a meagre revenue amount of Rs 11.58 lakh in H1FY12. Further, the company's bottomline stands at Rs 273.97 lakh in Q2FY13 as compared to Rs 22.14 lakh in FY12. GCM has actually posted a loss of Rs 81.83 lakh in H1FY13, if we remove the income from sale of investments from its topline. Further, the company has consistently posted losses in the last three years.  

On the valuations front, GCM has quoted Rs 20 per share and is trading at 86.95x of the annualised EPS Rs 0.23. Its peer companies like BNK capital, India Infoline, DB (Int.) stock broker, Motilal Oswal Financial Services etc are trading at 5.90x, 8.86x, 60.80x, 13.73x TTM respectively. This issue price (Rs 20) of GCM is quite higher than that of its peer and listed companies on the Indian bourses. 

Further, one disadvantage for this company is that it is not registered with the MCX for both commodity and equity exchanges. The valuation seems to be very aggressive considering its track record of being a consistent loss making company for the last few years. Hence, we recommend investors to stay away from this public issue.