4 IPOs this week! Should you invest?

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Four IPOs worth Rs. 2465 crores are hitting the markets this week — a fertilizer company, a watch retail company, a digital signatures certifying company and lastly, a construction services company.

Below, we provide an overview of what they do, why they are raising capital via IPO and the key positives and negatives for each. Will you invest in any?

Paradeep Phosphates (PPL): May 18 to May 20

Paradeep Phosphates Limited is engaged in manufacturing, distribution and sales of non-urea fertilizers in India. The company’s fertilizers are marketed under the brand names Jai Kisaan-Navratna and Navratna.

Why IPO?

It is raising Rs.1502 crores and plans to use these funds for -

  1. Investing in new production facilities — Ammonia production plant, Urea production plant and combined NPK production plant (Rs. 520 crores)
  2. Repayment/prepayment of certain borrowings (Rs. 300 crores)
  3. General Corporate Purposes.

Details of the IPO?

  • Price Band — ₹39 — ₹42 per equity share
  • Lot Size — 350 Shares
  • Minimum Investment — ₹14,700 per lot

Positives:

  • Paradeep Phosphates is the third largest private manufacturer of non-urea fertilizers in India and second largest in terms of DAP (Di-Ammonium Phosphate) volume sales as of March 2021.
  • The company has an extensive sales and distribution network, which includes >4700 dealers and >67000 retailers serving over 50 lakh farmers in India.

Negatives:

  • Policies relating to the agriculture sector such as changes in incentives, subsidies and minimum support prices could affect the ability of farmers to spend on fertilizers.
  • Performance of the agricultural sector and the demand for fertilizers depends on area under cultivation, soil quality, climatic conditions etc., all of which are beyond control.

Ethos Limited: May 18 to May 20

Ethos Limited is the largest luxury and premium watch retailer in India. They operate on an omnichannel model (offline and online) and have a portfolio of 50 premium brands like Omega, Rado, Jaeger LeCoultre, Panerai, etc.

Why IPO?

It is raising Rs. 472 crores and plans to use these funds for -

  1. Repayment/ Prepayment of borrowings (Rs. 30 crores)
  2. Financing the opening of new stores and renovating existing stores (Rs. 268 crores)
  3. To upgrade their ERP software (Rs. 2 crores)
  4. Working Capital Requirements.

Details of the IPO?

  • Price Band — ₹836 — ₹878 per equity share
  • Lot Size — 17 Shares
  • Minimum Investment — ₹14,926 per lot

Positives:

  • As of Q3 FY22, the company had access to a High Net-Worth Individuals customer base of over 2,76,000. Access to the digital platform increased from 1.5 Crore sessions in 2019 to 2.1 Crore sessions in December 2021.
  • Strong Distribution and Seller Network — With 50 retail stores, 7,000+ premium and luxury watches and about 30,000 watches in stock, the retail stores are located strategically in shopping malls, airport terminals and other premium areas.

Negatives:

  • Looking at the firm’s earnings, the P/E Ratio would stand at 96 if we take into account FY22 Earnings and 354 looking at FY21 earnings, which makes the IPO exorbitantly priced.
  • Sectors like Luxury Goods tend to slow down when economic conditions are tough. Any impact on the luxury watch industry can affect the company adversely.

eMudhra Limited (EML): May 20 to May 24

eMudhra Limited is India’s largest licensed Certifying Authority (Certifying Authority is a trusted entity that issues digital certificates to authenticate content sent from web servers). The company’s business is divided into two vertices — Digital Trust Services and Enterprise Solutions.

Why IPO?

It is raising Rs. 412 crores and plans to use these funds for -

  1. Repayment/ Prepayment, of certain borrowings (Rs. 35 Crores)
  2. To purchase equipment and funding of other related costs for data centers proposed to be set-up in India and overseas locations (Rs. 46 Crores)
  3. Funding of expenditure relating to product development (Rs. 15 Crores)
  4. Investing in eMudhra INC to augment its business development, sales, marketing and future growth (Rs. 15 Crores)
  5. Working Capital Requirements and General Corporate Purposes.

Details of the IPO?

  • Price Band — ₹243 — ₹256 per equity share
  • Lot Size — 58 Shares
  • Minimum Investment — ₹14,848 per lot

Positives:

  • The company has strong digital signature certificate expertise and is the only Indian company to be directly recognized by renowned browsers and document processing software companies such as Microsoft, Apple, and Adobe, allowing it to sell digital identities to individuals and organizations worldwide.
  • The firm has posted excellent financial results — it has posted total growth of 35% in Revenues and 75% in Profits in the last 3–4 years!

Negatives:

  • Cyber security is a significant risk. They rely heavily on technology to conduct their business and it is an essential part of their business.
  • The company plans on expanding in countries where it has not operated before. Whether the same model will work in another country is a question mark.

Rachana Infrastructure Limited: May 20 to May 25

Rachana Infrastructure Limited is a mid-size company engaged in the business of construction of roads and highways, irrigation, hydropower projects and mining/pipeline construction.

Why IPO?

It is raising Rs. 78 crores and plans to use these funds for:

  1. Repayment of secured loans (Rs. 7.5 cr.)
  2. Working Capital Requirement (Rs. 21.5 cr.)
  3. General Corporate Purposes (Rs. 9.4 cr.)
  4. Rest is an Offer for Sale for existing Shareholders (Rs. 39.6 cr.)

Details of the IPO?

  • Price — ₹138 per equity share
  • Lot Size — 1000 Shares
  • Minimum Investment — ₹1,38,000 per lot

Positives:

  • Strong order book, which stood close to Rs. 240 crores as of Dec’21
  • Management and an integrated in-house project team with strong execution capabilities and extensive industry experience.

Negatives:

  • Revenues and Profits were 114 cr. and Rs. 5 cr. in FY19 respectively, which has come down to Rs. 42 cr. and Rs. 1.4 cr. for the first 9 months of FY’22, showcasing a sharp decline.
  • The orders are subject to cancellation and modifications, mentioned in various contracts and other relevant documentation.
  • The major purpose of the IPO is to reduce the debt of the company, but not growth-related.