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Humming Bird BSE SME IPO review (Others)

Review By Dilip Davda on Mar 13, 2019

•    The company is in the business of conducting Olympiads.
•    It operates on franchisee arrangements with the third party.
•    Financial data is on a minuscule basis. Growth in earnings for H1 of FY19 raises concern.
•    The issue is fully priced; Company will take a longer time for migration as it currently has very low equity.

ABOUT COMPANY:
Humming Bird Education Ltd. (HBEL) is engaged in the business of conducting Olympiads, where students are evaluated on a scientifically constructed syllabus and their academic performance is ranged relative to their peer group. HBEL's examinations use a multifaceted approach in judging students on their in-depth knowledge of the subjects as well as on enhance their factual, conceptual, reasoning, logical, analytical and problem solving skills, helping them better understand their strengths and weaknesses further enabling them to convert their Olympiad results into superior scholastic gains and realize their true intellectual potential.

The company has been awarded "Asia's Greatest Brands of the year 2017-18" by Price Water House Coopers P.L. As on 31.03.18, HBEL operates 17 Humming Bird centres through franchisee arrangements with third parties.

The education sector is a highly competitive business and gets affected by frequent changes in Government policies.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its working capital and general corpus fund needs, HBEL is coming out with a maiden IPO of 163000 equity shares of Rs. 10 each at a fixed price of Rs. 132 per share to mobilize Rs. 2.15 crore. The issue opens for subscription on 15.03.19 and will close on 19.03.19. Minimum application is to be made for 1000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. Issue constitutes 26.59% of post issue paid up capital of the company.

The issue is solely lead managed by Share India Capital Services Ltd. while Bigshare Services Pvt. Ltd. is the registrar to the issue. Share India Securities Ltd. is acting as a market maker for this issue. Having issues all equity at par, the company has also issued bonus shares in the ratio of 1 share for every 2 shares held in September 2018. The average cost of acquisition of shares by the promoters is Rs. 0.63 and Rs. 5.83 per share. Post issue HBEL's current paid-up capital of Rs. 0.415 cr. will stand enhanced to Rs. 0.613 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, HBEL has posted turnover/net profits of Rs. 0.52 cr. / Rs. 0.01 cr. (FY16), Rs. 0.94 cr. / Rs. 0.04 cr. (FY17) and Rs. 1.17 cr. / Rs. 0.11 cr. (FY18). For the first half of the current FY19, it has posted a net profit of Rs. 0.37 cr. on a turnover of Rs. 1.09 cr. HBEL receives all orders in advance that helps it to manage its cash flow well. However, a quantum jump in the bottom line for the first half of FY19 i.e. IPO year raises concern.

For the last three fiscals, HBEL has posted an average EPS of Rs. 4.31 and an average RoNW of 57.73%. The issue is priced at a P/BV of 7.14 on the basis of its NAV of Rs. 18.48 as on 30.09.18. On the basis of post issue NAV of Rs.48.67, the issue is priced at a P/BV of 2.71. If we annualize latest bumper earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 11. issue appears fully priced.

COMPARE WITH LISTED PEERS:
As per the offer documents, it has shown CL Educate, Navneet Education, Siddharth Education and Shanti Educational as its listed peers. However, all of them are strictly not comparable with the model of HBEL. These peers are currently trading at a P/Es of around 21, 14, 11 and NA. (As on 13.03.19)

MERCHANT BANKER'S PERFORMANCE:
On merchant banker's front, this is the 2nd mandate from its stable. The only listing took place recently (i.e. Anmol India) opened at a premium of 1.81% on the day of listing.


Conclusion / Investment Strategy

This is a very tiny IPO from the education sector that has seen many ups and downs in the recent past. Company's financial data is minuscule and valuation based on the latest super earnings appears fully priced. However, it will take a longer time for migration to the main board considering current paid-up equity. Hence cash surplus risk savvy investors may consider it for the long term at their own risk.

Reviewer not sure about the issue.

Review By Dilip Davda on Mar 13, 2019

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. With entry barriers, SEBI wants only well informed investors to participate is such offers. With crazy recent listings, SME IPOs have started drawing attention of investors across the board. However, as SME issues have entry barriers and continued low preference from broking community, any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on information available as on date coupled with market perceptions. Author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).


About Dilip Davda

Dilip Davda, a freelance journalist

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

Email: dilip_davda@rediffmail.com

The Humming Bird Education ipo Analysis helps you to understand about the company, offer detail, valuation, capital structure and financial performance. Our SEBI registered IPO Analysts tells you if Humming Bird Education ipo worth investing. The Humming Bird Education ipo Note sets the IPO expectations in systematic way which tells you if Humming Bird Education ipo good to buy (good or bad / yes or no). The IPO Forecast tells you weather to invest in Humming Bird Education ipo by providing IPO recommendations i.e. subscribe, avoid and neutral.


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