The Crap continues to hit the Indian Primary Market with another Junk Microcap trying to raise $11 mm from the market.The company will dilute around 48% of its total holdings to give it a market cap of around Rs 100 crore.The investment bank for this issue is Chartered Capital which arguably brought out the crappiest IPO in recent history of the Indian Capital Markets.The amount of Junk that is being listed would fill out a giant scrapyard with issues like Prakash Steelage,Tirupati Inks,Sea TV,Aster Silicates etc. etc.The list is really long and most of these issues have bombed on their very day of listing.Gyscoal Alloys is another one of these junky issues.Here are the choice highlights from the Red Herring Prospectus filed by the company
1) Restructuring of Debt -Company has too much debt and no profits to pay back.
“There has been a reschedulement of repayment of quarterly installments of the term loan to UCO Bank in the financial year 2009-10. The Original installment was for Rs.31.25 Lacs per Quarter
which was relaxed to Rs.6.25 lacs per Quarter for the year 2009-10.”
2) Cash flow of the Company has been negative in the past – The company has managed to show negative operating cash flows in all but one of the last 5 years.
3) The Land on which the Company will build the proposend new plant is owned by an insider for which Rs 4.5 crores has already been paid.Don’t know why the company could not rent/lease/find cheaper or subsidised land.
“One of the sellers of the land on which proposed project is proposed to be established and for which an Agreement for sale has been executed i.e. Mr. Ratuji Bhemaji Solanki is a key managerial personnel of the Company. Total Amount to be paid to the sellers for the land is Rs.700.00 lacs out of which they have already been paid to the extent of Rs.428.75 lacs.”
4) The Company has not yet paid income tax for the assessment year 2008-09 & 2009-10 which amounts to Rs.361.54 lacs and Rs.36.14 lacs respectively. – Don’t ask me why
5) Very Low Margins,Erratic Sales and Profits,High Debt – The Company’s Financials are a mess with Operating Margins of 6-7% and Net Margin of around 1%.The Company has debt of around Rs 30 crores.
Deflating Developed Economies like the USA and Japan are fueling asset bubbles in Emerging Markets like India which are seeing a Foreign Investment driven Bull Run.Indian Investors are running away from the Stock Markets with record outflows being seen from Equity Mutual Funds.$20 Billion of FII money has been pumped into the Indian markets in 2010 surpassing the $18 Billion in 2009.Low Quality Junk is having a gala time trying to take advantage of naive retail investors who are caught in the euphoria of listing gains of IPOs.Don’t doubt that the issue will not be subscribed but am pretty certain that it will prove to be a loss making investment.