By Geetanjali Kedia

Infibeam Incorporation is entering the primary market on Monday 21st March 2016 to raise Rs. 450 crore via a fresh issue of equity shares of Rs. 10 each, in the price band of Rs. 360-Rs.432 per share. This is 20% wide price band range is probably the highest for an IPO in the recent times. Rightly so, such poor quality issues need it! Representing 19.60% of the post issue paid up share capital of the company at the upper price band, issue closes on Wednesday 23rd March 2016.

Before taking a call on the company business, performance, prospects and pricing of the issue, let’s first have a look at some of the material developments in company’s history, since its inception:

1)    Company and one of its subsidiary Infinium have not filed many vital forms with Registrar of Companies (RoC) pertaining to appointment of MD, Board and Special Resolutions for equity allotment, amendment of Articles of Association, appointment of Auditors, increase in borrowing limits of Board, which have material and far reaching implications, in addition to thrashing corporate governance and hinting at activities being carries out in back dates.

2)    Form No. 2, filed on 20-9-2010, in respect to allotment of company’s 2.95 crore equity shares of Rs.10 each, at par, was subsequently changed (to show them having partly issued as bonus and not for acquisition of shares in a subsidiary) on 24-7-2012 (Refer Page 85 & 86 of RHP).

3)    Company issued 1 crore equity shares, to acquire 1.142 crore equity shares of subsidiary Infinium, since then, both having FV of Rs.10 each. Infinium had total assets of Rs.22.07 crore, with topline of Rs. 16.70 crores in FY11 (Page F-71), on which PAT was meagre, as consolidated income of Rs. 54.46 crore had profit of Rs.1.71 crore, which includes the income of Infinium as well (Page F-78).

4)    During FY11, company had revalued its investment of Rs. 1 lakh (being 10,000 equity shares held in NSI Infinium Global Pvt. Ltd) referred as NSI, by Rs. 20 crores. NSI had total assets of R.8.18 crores, with topline of Rs. 37.79 crores in FY11 (Page F-70) on which PAT was meagre, as consolidated income of Rs. 54.46 crore had profit of Rs.1.71 crore, which includes the income of NSI as well (Page F-78).

5)    This revaluation reserve of Rs.20 crore was largely used for issue of 1.95 crore equity shares of Rs. 10 each, as bonus shares, aggregating to Rs.19.53 crores on 10-9-10 (Page 84).

6)    In FY 2013, said revaluation reserve of Rs. 20 crores were reversed, in consolidated accounts given in RHP, in the year of its origination (Page F-13). Reference of this can be seen at more than 30 places in the RHP, as it was used as a tool to see promoter raising their stake in the company.

7)    Page 239 of RHP, under the head ‘Revaluation of Assets’ gives a wrong statement in respect to investment revalued from Rs. 10 lakhs to Rs. 20 crores, while it is actually from Rs. 1 lakh to Rs. 201 lakh. Also, page reference of 64 and 217 does not give any reference of this.

8)    Hence, on 10-9-11, bonus shares were issued, despite company having loss of Rs. 24 lakhs, in its first year for period ending 31-3-11(Page F-8), with debit balance seen in Reserves & Surplus on date of issue of bonus as well.

9)    How can a company, having incorporated on 30-6-10, issue bonus shares of 361 shares for every 1 share held, without having any operational performance on standalone and consolidated basis (Page F5 to F8 and F77 to F78)?

10) Infinium India is shown as 100% subsidiary of the company, since 10^th July 2013 (Page F-95), with stake shown at 1,20,80,000 shares of Rs. 10 each (Page F-37). However, Page 148 and 149 of RHP show 1.35 crore equity shares as Issued, Subscribed and Paid up Capital of Infinium, without any date, which itself is wrong and misleading information. So, what is the correct status and equity of Infinium?

11) Equity shareholding of 6 subsidiaries, as given on Page 148 to 151 of the RHP, does not state the dates of Capital Structure, which again is incomplete, wrong and misleading.

12) Company derived 87% of its topline from NSI and Infinium for FY 15, with PAT of Rs. 99 lakhs (Page 152). Inspite of this, both companies were used as tool to increase promoter equity and mobilise IPO money now.

13) Two BRLM (Kotak and ICICI Sec), who were associated with the issue at the time of filing of the DRHP, have withdrawn from the issue, for reasons not known, which is a serious cause of concern for prospective investors.

Having presented the background of the company, let’s have a look at its financials. For FY 15, total income was at Rs. 295 crores, with net loss of Rs. 9.79 crores. In last 5 years, company’s total income was at Rs. 841 crores, with net loss of Rs. 90.10 crores. But for 6 months ending 30-9-15, income was at Rs.175 crores with net profit of Rs. 6.58 crores. Will any investor rely on it? Well we all know that you need to present and package your company better just ahead of IPO, isn’t it?

Present equity of the company is Rs. 42.68 crores, of which, equity of Rs. 29.53 crores was issued by share swap and bonus to the promoters, as stated above. In May 2012, company made preferential allotment, of close to 75 lakh shares, at Rs. 11 per share.

Company is projecting itself an e-commerce company, while it the true sense, it is a trading company, selling products online, making losses for the past 5 years. Even if we call it as a fancied e-commerce company, having an annualised topline of Rs. 350 crores, it has to give an Advance for Advertisement of Rs. 19 crores, as at 30-9-15, which was as high as Rs.35 crores on 31-3-12. See the credibility and cost involved, for projecting itself as an e commerce company!

Also, e-commerce companies are valued based on net commission earned as income, while gross merchandise value of products sold are not given any credence. Snapdeal is estimated to have an annual revenue of close to Rs. 940 crores for FY15, on which it is learnt to have made net loss of Rs. 1,300 crores, with ad spend of Rs. 1,050 crores. Flipkart, seen to be selling products of over Rs. 45,000 crore in FY16, but will be making losses of over Rs. 800 crores, while showing income of close to Rs. 2,000 crores only. So, let’s not getting carried away with tag of e-commerce, which as such, is seeing huge write down in its valuation, case in point being Morgan Stanley’s 27% write down of its Flipkart investment just last month.

Even if we consider post issue equity of Rs.55 cores, with price discovery at Rs. 360 per share, we are looking at a market cap of close to Rs.2,000 cores. Company has given loan of Rs. 207 crore to NSI, its subsidiary, which is not yielding much contribution to its bottomline, on a consolidated basis. Company now wants to buy software for Rs. 67 crores, which can be sourced from this loan given to subsidiary. Rs. 235 crore is estimated for purchasing offices and setting up cloud data centre, which itself shows the weak backbone of technology support of the company. Hence, purpose for which fund is being mobilised is neither convincing nor profit-accretive going ahead.  

Hence, clear advice is to remain away from this issue, due to many serious issues on corporate ngovernance front, which is not even giving an iota of comfort (this being a critical point for any listed stock now), track record of promoters, trading nature of business, negative margins seen for e-commerce sector, which must have enough cash to burn going forward, with no space seen for survival for such a tiny player, where promoter wants to make merry on public money, by retaining significant stake at an effective cost of less than Rs. 5 per share.

On a lighter note, use your money to buy some smart and cheap stuff on e-commerce sites, instead of investing in Infibeam’s IPO!

Final conclusion is a clear and big avoid. We would also like to add that SEBI, on its part as a regulator, must be prudent in not allowing such issues, as nothing can be expected from BRLMs, given their miniscule interest.

Disclosure: No interest

(last updated 19^th March 2016, 6:40 pm)