GEMINI ENGI FAB

Gemini Engi Fab is entering the capital market on 3^rd February 2009 with a public issue of 55 lakh equity shares of Rs.10 each, in the price band of Rs.75 to Rs.80 per share.

After a long wait, we have been forced to face one more IPO who has all the characteristics of an IPO 'for, of and by the promoters'. As usual, we see a good growth in the financial performance of the company in the last 18 months, maybe to lure gullible investors.

But even if we go by such rosy and growth oriented results, EPS for FY 08 stood at Rs.6, taking PAT of Rs.3.85 crores on equity of Rs.6.22 crores as at 31-03-08. Financials of the company as at 30-09-08 are quite alarming with Sundry Debtors of Rs.15.72 crore against total sales of Rs.15.90 crores in first six months of FY 09, which includes a trading turnover of Rs.5.34 crores. Even inventory of Rs.13.43 crores held by the company as at 30-09-08 is largely financed by current liabilities of Rs.12.60 crores. Inspite, the company has been able to have a working capital finance of Rs.8.50 crores from Bharat Co-op Bank Ltd.

With a gross block of just Rs.7 crores and an annual topline of close to Rs.25 crores, the company is setting up a new plant of Rs.50 crores. To finance this, Rs.10 crore of Term loan has been sanctioned by Barclays Bank, which will get disbursed only after successful completion of IPO. The Bank had also kept call option after 3 months from first disbursal, which is very risky for a term loan facility.

The share is issued in the band of Rs.75 - Rs.80, which implies a PE ratio of close to 12 times even at the lower band. We are witnessing the whole market ruling at PE of an average of 10 times with frontline blue chips available at a PE of 4 - 5 times. Small and Micro Cap companies like these are available at a PE of close to 1 - 2 times and way below its book value. So why anybody would be taking risk to buy this stock at a 12 PE and having book value of just Rs.30 as at 30-09-08?

The company is promoted by father and his three sons, all working in executive capacity. Hence, four independent directors have been inducted, to balance Board. Purely, a family company to cater the needs of the promoters.

Fate of the issue is known. Initial momentum and speculation on listing, maybe, to give an exit route to IPO subscribers (who will be largely managed) and finally share would settle between Rs.15 to Rs.30. So why to take a risk in such an IPO? Also, it's strange and risky to see such an issue tapping the market in the beginning of 2009 when the markets are yet to revive. With such IPOs, don't expect any positive bias getting build for the primary market.