Know Your IPO : Cityon Systems India

Cityon Systems India (CSIL) is planning to go public through the small and medium enterprise platform of BSE. The company is offering 62 lakh equity shares at a fixed price of Rs 20 per share. This issue will help the company to raise a fund of Rs 12.4 lakh equity shares.The public issue will also include reservation of 3.10 lakh equity shares for the market makers. Lead Manager for this issue is Mefcom Capital Markets.

Delhi based CSIL was incorporated in the year 2004. At its initial stages the company was involved in the import, export, purchases, assembling, distribution and related activities in almost all type of computer software & hardware and data entry related jobs. Later, in the year 2008, CSIL expanded its work area by trading in all types of electric goods, shares, iron & metal, chemical etc.

CSIL has plans to utilize the raised fund for its brand building purpose, to set up a new marketing office in cities like Delhi and Kanpur. The other purpose of raising funds is to fulfill its long term capital requirement and the remaining to meet the issue related expenses. The company will deploy Rs 24 lakh for its brand building exercise and Rs 255 lakh for the new setting up new offices. And the rest amount of Rs 700 lakh and 45 lakh will be kept for capital requirement and issue expenses respectively.

CSIL has posted Rs 1.64 crore revenue during FY13. Further, the company has reported net profit of Rs 1.35 lakh during the same period. The debt on the company's balance sheet increased to Rs 21.11 crore in FY13 from Rs 16.91 crore in FY12. Interestingly, the company reported lower interest charges this year compared to last year. The company would have reported 42% growth in revenues this year if we exclude the revenue from sale of shares. However, there is no sale of shares activity during this year. Further, the company is operating on very thin net profit margins of 0.82%. The valuation also looks to be on the higher side at the given issue price. Hence this valuation is too high for a company which is operating on such thin margins. The peer group companies mentioned DRHP too showed dismal performance over past and couple of them are in periodic call auction category. Considering the company's business model, valuation of its shares and performance of peer group companies, we recommend our readers to stay away from this issue.