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Monday, July 11, 2011

Bharatiya Global Infomedia Limited (BGIL) IPO-Very Stretched Valuations

Bharatiya Global Infomedia Limited (BGIL) IPO Analysis Report

Issue Highlights
Issue Period: 11/7/2011 to 14/7/2011
Issue Size: 67,20,000 Equity Shares
Face Value:  ì 10
Price Range: ì  75- ì 82
Lot Size: 75 Equity Shares
Maximum Retail Limit: ì 1,96,800
Issue Type: 100% Book Building

Issue Allocation
·         QIB (qualified institutional bidder): not more than 33,60,000 equity shares

·         NII (non institutional bidder): not less than 10,08,000 equity shares


·         RII (retail individual investor): not less than 23,52,000 equity shares

Company Overview
BGIL provides information technology services and solution in RFID (Radio Frequency Identification).Besides this company provides services in media and entertainment industry (films, animation and VFX) and plans to provide services in the area of mobile application and TTFA(Token-Less Two Factor Authentication).Its main business operations consists of RFID &smartcard.
Object of the Issue
·         Setting up of corporate office and branch office at Noida and Mumbai respectively
·         Expansion of R&D technology centre
·         Repayment of bank borrowing
·         Long term working capital requirement
·         General corporate purposes and issue expenses


SWOT Analysis
Strengths
·         Company provides cost-effective product development services for all stages of product life cycle
·         Some reputed customer companies are Honeywell automation India ltd., HCL infosystem and Schneider electric India private limited .
Weaknesses
·         In past company’s application for NBFC status has been rejected by RBI .company and its 3  promoter group companies’ name appear on www.watchoutinvestors.com
·         In past Company had delayed its service tax payment and loans repayments .company is irregular in making debt and tax payments.
·         Negative cash flow in last few years
Opportunities
·         Lot of opportunities in services like TTFA, automatic number plate recognition, ticket dispensing system,

Threats
·         Concentrated customer base
·         There is reasonable probability for company to dilute its equity in future
·         Owing to complex business model profitability is difficult to predict and subjects to high variations
·         High investment in R&D is required

Financial Analysis
# Figures are for FY 2011 considering upper price band and post issue equity
EPS: ì 2.87
Book Value : ì 20.15
P/E:  28.6
Price/Book Value: 4.1
ROE (Return on Equity): 14.24 %
ROCE(Return on Capital Employed): 7.15 %
Current Ratio: 2.4
M-Cap/Sales Ratio: 1.82
Reserve/M-Cap Ratio: .17
Debt/Equity Ratio : .18
Net Profit Margin (NPM): 6.4%
Interest Coverage Ratio: 10.02
Return on Assets (ROA): 9.55%
Inference:
The issue is priced  at very high valuations in comparison with  peer company  Bartronics . Post issue EPS shall be reduced to a tad below ì 3 and thus giving a very high earnings multiple of 28.6.Post issue there is already too much dilution of equity and further dilution of equity in future shall erode EPS like nothing. Apart from this ROCE and NPM are below  industry peers. Company works in very competitive and challenging arena and requires very efficient R&D, failing to which company  shall lose its concentrated customer base and that might just wipe out the company.
Considering the very low survival rate for  a technology company in niche sectors, it is not appropriate to invest in this company that too at  such a high valuations.
Investors better skip this IPO.
Disclaimer
Analysis is for the information purpose only. Though due diligence has been taken while preparing this report, analyst shall not be responsible for any error and shall not bear any financial liability to the users of the report.

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