Should one subscribe to VMS Industries IPO?

May 30, 2011   ·   0 Comments

Incorporated in 1991, VMS Industries Ltd on its incorporation started the business activity in the nature of providing different kinds of financial and consulting services and later on diversified into the ship recycling and off-shore activities.

www.stockssavvy.comThe company is engaged in ship recycling activities in the Sosiya Ship Breaking Yard in Bhavnagar, Gujarat since only the last 2 financial years. Infact, ship recycling business was entered into as an opportunistic move only. In FY07, company acquired dealership of Honda Two Wheelers in partnership with one of the promoters while in May 2008, it started undertaking offshore business activities as well.

Issue Detail:

»»  Issue Open: May 30, 2011 – Jun 02, 2011
»»  Issue Type: 100% Book Built Issue IPO
»»  Issue Size: Equity Shares of Rs. 10
»»  Issue Size: Rs. 25.75 Crore
»»  Face Value: Rs. 10 Per Equity Share
»»  Issue Price: Rs. 36 – Rs. 40 Per Equity Share
»»  Market Lot: 160 Shares
»»  Minimum Order Quantity: 160 Shares
»»  Listing At: BSE

ICRA Rating: 1/5 for the IPO indicating below average fundamentals

Objects of the Issue:

The object of the issue are to:

1. Purchase of Machineries to be installed at existing Ship Recycling Plot;
2. Setting up of Corporate Office at Ahmedabad;
3. Meeting Long-term Working Capital Requirement;
4. Meeting the Issue Expenses.

VMS Industry Financials:

For FY10, company reported revenue of Rs. 29 crore and earned net profit of Rs. 2.6 crore. During 9mFY11, revenue rose to Rs. 50 crore, but net profit earned was only Rs. 2.5 crore on equity of Rs. 10.04 crore. Company has very high debt of Rs. 57 crore on networth of Rs. 23 crore, as at 31st December 2010, resulting into extremely high debt-equity ratio of 2.5:1. What is another big negative is the sudden eight-fold jump in inventory from Rs. 7 crore, as of 31st March 2010, to Rs. 59 crore, as of 31st December 2010, without supporting proportionate rise in business volumes. Clearly blocking Rs. 59 crore in inventory for a business, with networth of Rs. 23 crore (inventory is over 2.5 times of company’s networth)

Verdict: Long list of reasons why the Stock should not be even purchased at half the price at what it is offered. The issue is even worse than the Timbor House IPO.

a)    The issue is being managed by Ashika Capital, the BRLM who were associated with Tirupati Inks and Vaswani Industries.  The Vaswani IPO is yet to be listed in the exchanges. SEBI has ordered a probe into the alleged irregularities / withdrawal of applications by 3000 investors after closer of the IPO.

b)   Weak Management

c)    High Debt Company – 57 Crore of debt for a company having a profit of 2.9 Crores is a fragile business model which can’t be sustained.

d)   Weak Financials – Company seems to have no goals of achieving anything.

e)    Growth Trajectory: There seems no visibility in the growth of the company. Remember stock price is indicative of Company growth in Earnings over the years which is really not visible in this company.

Company should be ignored by Investors as well as Traders. Though the IPO should get subscribed by Operators. Traders should strictly keep away as every chance of Operator play in these kinds of small Issues.

What to do next? ONGC is coming with its FPO on 5th July. Keep your money ready for an long term investment which you’ll not want to miss.

Rajesh Singla

Rajesh is the founder & CEO of Stockssavvy, Stocks analyst,financial advisor by choice,software engineer by fate,biker,gamer,cricket lover n enthusiastic person. He believes in doing things not just to get by but to get Ahead...

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