Alacrity Securities Planning To Get Listed On BSE SME Index

Alacrity Securities (ASL), which is engaged in the business of providing financial services to customers, is the latest in the long line of firms that are coming out with public offerings. The company has recently filed a DRHP to get listed on the BSE SME platform. The issue will open on July 29, 2013 and will close on Aug 1, 2013.

The Mumbai-based company was incorporated in the year 1994 to offer financial services to investors like retail, HNIs and corporate. It offers a various range of products such as equity broking, F&O and currency derivatives. The company is a member of the capital market, while it is a trading member in the F&O segment of BSE/NSE and MCX-SX.

Through this IPO, ASL plans to offer 60 lakh equity shares of a face value Rs 10 apiece, through which it proposes to raise an amount of Rs 9 crore. In this offer, 4 lakh equity shares will be reserved for market makers, while the remaining 56 lakh will be for the net issue. The issue and net issue comprise 28.57% and 26.67% respectively of the post-issue paid-up equity capital. Currently, the company has 1.5 crore equity shares. The lead manager for the issue is Guiness Corporate Advisors.

ASL intends to use the funds raised to expand its domestic operations, along with the enhancement of margin money and to promote the brand. To expand its domestic operations, the company is planning to establish 10 new branches in Mumbai, Ahmedabad, Surat, Kolkata and Delhi on leave and license basis, towards which it will invest Rs 4.5 crore. It intends to infuse a sum of Rs 2.5 crore for enhancing the margin with exchanges by FY14-15. The rest of the issue proceeds will be deployed for brand building and other corporate expenses.

On the financial front, due to an increase in the sale of shares followed by a rise in brokerage during FY12, its operating income grew by 23% to Rs 13.89 crore against that in the last fiscal year. In contrast, the Other Income showed a huge decline during this period. However, the huge purchase of shares has heavily increased its operating cost. This has contributed to impact the EBITDA of ASL, which declined by 63% to Rs 3.61 crore. Eventually, the large increase in finance expenses has eaten up the bottomline of company, which declined by 99% to Rs 10 lakh in FY12 from Rs 7.40 crore in FY11.

For this IPO, ASL is quoting at Rs 15 for one share, which is at an FY12 EPS of Rs 0.05 and the PE stands at 303.47x. Its peer companies such as DB International Stock Broking and Microsec Financial Services are trading at a TTM PE of 62.26x and 9.99x respectively of their TTM EPS. On the valuations front, the issue price looks very expensive when we compare it with that of its peers. During FY12, the company's EBITDA and net profit were drastically affected, which has lead to a huge loss. Also, for the period 9MFY13, ASL has posted a loss of Rs 87 lakh.

Considering that the company reported losses in the previous year and the fact that the brand is not well known in the market, we advise investors to stay away from this subscription.