Ace Tours Comes Up With IPO

Ace Tours Worldwide (Ace Tours), a tours and travel company based in Surat, Gujarat, is coming up with an IPO to get listed on the Indian bourses. The issue constitutes of 0.5 crore equity shares at a face value of Rs 10 each. Out of these, 2.7 lakh shares are reserved for the market maker of the issue and the remaining is for the public. The book running lead manager for this IPO is Corporate Strategic Allianz.

The issue is priced at Rs 16 per equity share and the company is expecting to raise funds to the tune of Rs 7.568 crore from the public. The company intends to use these funds for brand building (Rs 1.6 crore), working capital requirements (Rs 6 crore) and meeting the general listing and corporate expenses.

Ace Tours was established in the year 2007, and became a public company in 2011. It offers both domestic and international tour services. It provides services like school trips, special planned tours, travel booking (air tickets, railway tickets, hotel bookings) etc. The company has its branches at Mumbai, Ahmedabad and Rajkot.

The Indian and global tours and travel industry is directly related to the GDP growth. When the economy does well, the tour and travel industry receives a boost. Along with this, the industry is also dependent upon seasonal periods like vacations and holidays.

Ace Tours posted a poor set of results during FY12, wherein its topline declined by 12% to Rs 19.58 crore from Rs 22.34 crore in FY11. This fall was mainly due to the decrease in sale of packaged tours followed by a fall in air ticket booking. Income from the sale of packaged tours declined by 11% to Rs 12 crore, while that from air ticket booking came down by 24% to Rs 4.48 crore in the same period. Due to such fall in the income, the total operating expenses too declined by 12% to Rs 18.07 crore in FY12 as compared to Rs 20.53 crore in FY11. Further, the decline in sales affected the EBITDA, which dipped by 17% to Rs 1.81 crore in FY12 on a YoY basis. Moreover, a 30% jump in finance charges has hit the company’s bottomline, which dropped sharply by 75% to Rs 0.13 crore in FY12 against Rs 0.52 crore in FY11.

On the valuations front, Ace Tours’ listed peer companies like International Travel House, Trade Wings and Cox & Kings are trading at a trailing 12-month (TTM) PE of 7.13x, 362.73x and 6.49x respectively. Ace Tours has quoted Rs 16 per share for the said offer, which is at an FY12 EPS of Rs 0.10 and the PE stands at 159.5x. As Ace Tours is a new and less experienced player, the quoted share price seems steep as compared to that of its peer companies. Also, as we saw, the company has posted bad results in FY2012.

In March 2012, the company has filed a DRHP with the SEBI to list its equity shares on the BSE and NSE indices, but has since dropped the idea and is now planning to get listed on the BSE SME platform. Moreover, it has also shunned its proposed expansion plans of building service apartments in Surat for reasons unknown. Hence, we suggest that investors stay away from this issue.