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Vishwaraj Sugar IPO review (Avoid)

Review By Dilip Davda on Sep 27, 2019

•    VSL is an integrated sugar and other allied products manufacturing company.
•    It has shown inconsistent top and bottom lines.
•    In particular, the last two fiscals have seen negative earnings.
•    VSL is in the segment having controlling and quota policy.
•    Merchant banker has a dismal track record.
 

ABOUT COMPANY:
Vishwaraj Sugar Industries Ltd. (VSL) is an integrated sugar and other allied products manufacturing company operating from Belgaum District in the State of Karnataka which is designated as one of the 'High Recovery zones' for sugar production by Government of India. The company operates a single location sugar unit having licensed crushing capacity of 11,000 TCD. In addition to sugar VSL also manufacture other allied products like Rectified Spirits, Extra-Neutral Spirits, Indian Made Liquor, Vinegar, Compost, Carbon dioxide (CO2), etc. and are further engaged in the generation of power for captive consumption as well as external sale. Its business can hence be broken up into five main segments namely Sugar, Co-Generation, Distillery, Indian Made Liquor (IML) and Vinegar.
 
ISSUE DETAILS/CAPITAL HISTORY:
To part finance the working capital requirements (Rs. 15.70 cr.) VSL is coming out with a maiden IPO via book building route. VSL is issuing 10000000 equity shares of Rs. 10 each in a price band of Rs. 55 - Rs. 60 per share to mobilize Rs.55 cr. to Rs. 60 cr. (based on lower and upper price bands). The issue opens for subscription on 30.09.19 and will close on 04.10.19. The issue consists of fresh equity issue of 3000000shares and Offer for Sale of 7000000 shares. Minimum application is to be made for240 shares and in multiples thereon, thereafter. The issue constitutes 26.63% of the post issue paid-up capital of the company. Post allotment, shares will be listed on BSE and NSE. The issue is solely lead managed by Aryaman Financial Services Ltd. while Bigshare Services Pvt. Ltd. is the registrar to the issue. VSL has allocated 10% issue for QIB's 40% for HNIs and 50% for Retail Investors. Having issued initial equity at par, VSL issued further equity in the price range of Rs. 60 to Rs. 200 per share (on the basis of Rs. 10 paid-up value) from October 2007 to December 2010. The average cost of acquisition of shares by the promoters is Rs. 9.30, Rs. 10.00, Rs. 11.71 and Rs. 12.55 per share. Post issue, VSL's current paid-up equity capital of Rs. 34.56 cr. will stand enhanced to Rs. 37.56 cr.


 
FINANCIAL PERFORMANCE:
On the financial performance front, for the last four fiscals, VSL has posted turnover/net profits of Rs. 408.65 cr. / Rs. 0.85 cr. (FY16 proforma), Rs. 322.90 cr. / Rs. 6.06 cr. (FY17 proforma), Rs. 268.93 cr./ Rs. -(4.27) cr. (FY18) and Rs. 307.88 cr. / Rs/ -(17.62) cr. (FY19). Thus it has inconsistency in the top and bottom lines. In fact, for the last two fiscals, it has posted losses and thus it has negative earnings. According to management, due to the quota system, it has to carry over a huge inventory of sugar at the end of every year. Currently, it is holding sugar stock having a market value of Rs. 190 cr.
 
For the last three fiscals, VSL has posted an average EPS of Rs. - (2.67) and average RoNW of - (4.35%). The issue is priced at a P/BV of 0.98 based on its NAV of Rs. 61.20 as on 31.03.19. Due to negative earnings, its IPO is having negative P/E against the industry average of 6. The company is incurring higher financial cost due to huge borrowings.
 
 
COMPARISION WITH LISTED PEERS:
As per offer documents, it has shown Ugar Sugar, Dwarkesh Sugar, Balrampur Chini and Dhampur Sugar as its listed peers that are currently trading at a P/Es of around 0, 5.8, 6.1 and 5.1. (As on 27.09.19). However, they are not strictly comparable.
 
MERCHANT BANKER'S TRACK RECORDS:
On the merchant banker's front, this is the 36th mandate from its stable in the last three fiscals (including the ongoing one).  Out of the last 10 listings, 2 opened at discount and the rest with premiums ranging from 0.09% to 1.92%. Thus it has dismal track records.


Conclusion / Investment Strategy

The sugar industry is having a controlled policy and the quota system. Poor financial data is not in line with asking price. Considering this, there is no harm in giving this issue a miss.

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on Sep 27, 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 before making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at its own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The 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

Vishwaraj IPO FAQs

  1. 1. Why Vishwaraj IPO?

    The initial public offer (IPO) of Vishwaraj Sugar Industries Ltd offers an early investment opportunity in Vishwaraj Sugar Industries Ltd. A stock market investor can buy Vishwaraj IPO shares by applying in IPO before Vishwaraj Sugar Industries Ltd shares get listed at the stock exchanges. An investor could invest in Vishwaraj IPO for short term listing gain or a long term.

  2. 2. How is Vishwaraj IPO?

    Read the Vishwaraj IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. Vishwaraj IPO what should investors do?

    Vishwaraj IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the Vishwaraj IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.

  4. 4. Is Vishwaraj IPO good?

    Our recommendation for Vishwaraj IPO is to avoid.

  5. 5. Is Vishwaraj IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to avoid the Vishwaraj IPO.

  6. 6. When will Vishwaraj IPO allotment status?

    The Vishwaraj IPO allotment status will be available on or around Oct 11, 2019. The allotted shares will be credited in demat account by Oct 15, 2019. Visit Vishwaraj IPO allotment status to check.

  7. 7. When will Vishwaraj IPO list?

    The Vishwaraj IPO will list on Tuesday, October 15, 2019, at BSE, NSE.