India Finsec IPO To Hit The Markets on 24 May 2013

Twenty small and medium enterprises have been listed on the BSE SME platform. The non-banking financial company (NBFC) India Finsec (IFL) is now set to list its equity shares on this platform. The issue will opens on 24 May 2013 and will close on 28 May 2013. The issue will be a fixed price issue of 60 lakh equity shares at a price of Rs 10 per share. It will pump in an amount of Rs 600 lakh to the company. 

Of the total issue, 6.5 lakh equity shares will be reserved for the IFL promoters and 3.5 lakh will be reserved for market makers, while the remaining 50 lakh will be the net issue for the public. The total issue and the net issue constitutes of 30.86% and 25.72% respectively of the post issue paid up equity shares. At present, the company has 134.42 lakh equity shares and will stand at 194.42 lakh equity shares post the issue. The book running lead manager for this IPO is Aryaman Financial Services.

IFL, based in New-Delhi is a non-deposit taking non-systemically important NBFC. It primarily operates in the business of advancing loans and investing in securities. It offers various financial services including unsecured loans, property loans, personal loans, retail IPO funding, inter corporate deposits, and also provides financial and management consultancy services.

Further, it is only because of considerable increase in trading activities (investments) that the company has posted 216% growth to Rs 497 lakh in the operating income in FY12 against Rs 157 lakh in FY11. Contrary to this, the company's total expenses have showed a huge increase of 219% to Rs 486 lakh in the similar period. The total expenditure mainly increased on account of higher purchase of gold coins, bonds and equity shares in this period. This has pulled down the bottomline to just Rs 7.29 lakh in FY12. The outstanding loan book stands at Rs 2933.17 lakh for the 9-month period ended December 2012.

IFL is likely to use the raised fund to purchase land and set up its registered office. In addition, it also intends to augment its capital base to increase its non-banking activities. IFL proposes to invest approximately Rs 350 lakh for setting up the new office and Rs 200 lakh to augment its capital base requirement.

On the valuations front, IFL has quoted an issue price of Rs 10 per share trading at 230.5x PE of EPS Rs 0.04 in FY12. However, its peer companies like India Infoline, Motilal Oswal Financial Services and Edelweiss Capital are trading at a trailing 12-month PE of 7.3x, 12.19x and 13.75x of their respective EPS.

Considering its peer companies, IFL has quoted an expensive price for this issue. Moreover, the Indian government has recently undertaken many reforms for NBFCs and has adopted some tightening measures. Hence, we recommend readers not to subscribe to this offer.