Final Report

Analysis of Indo Thai Securities’ IPO

Prepared by-

Abhishek Moonat

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Acknowledgement

I have taken efforts in this project. However, it would not have been possible without the kind

support and help of many individuals and organizations. I would like to extend my sincere

thanks to all of them.

I am highly indebted to Prof. Tirthank Shah and Prof. Abhay Raja for their guidance and

constant supervision as well as for providing necessary information regarding the project &

also for their support in completing the project.

I would like to express my gratitude towards my parents & my workplace mentor Mr. Tarun

Jain for their kind co-operation and encouragement which help me in completion of this

project.

I would like to express my special gratitude and thanks to all my professors for giving me

such attention and time.

My thanks and appreciations also go to my colleague in developing the project and people

who have willingly helped me out with their abilities.

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Table of Contents 1. Introduction to Indian IPO market ...................................................................................................... 3

Developments in Indian IPO market- .................................................................................................. 3

2. Company’s Introduction ..................................................................................................................... 3

DB (International) Stock Brokers ........................................................................................................... 4

3. Risk Factors ......................................................................................................................................... 4

4. Reasons for Introduction of IPO .......................................................................................................... 5

5. Financial Performance- ....................................................................................................................... 6

6. Change in shareholding pattern .......................................................................................................... 8

7. Share Price Performance .................................................................................................................... 9

8. Conclusion ......................................................................................................................................... 11

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1. Introduction to Indian IPO market The IPO Market in India has been developing since the liberalization (1990s time) of the Indian

economy. It is the most popular method to raise the capital for a private company.

The IPO Market in India is on the boom as more and more companies are issuing equity shares

in the capital market for raising capital.

Developments in Indian IPO market-

1992

1. Establishing SEBI as regulating body

2. Disassembling of the Controller of Capital Issues (CCI) and the introduction of the free

pricing mechanism. This step helped in developing the IPO Market in India, as the

companies were permitted to price the issues. The Free pricing mechanism permitted

the companies to raise funds from the primary market at competitive price.

3. Establishment of NSE as the first demutualized electronic exchange in the country.

This fully automated screen-based electronic trading system offered easy trading

facility to the investors spread across the country.

1995- Growth of the Indian IPO market was recorded at 32 %.

2001- Reduction in settlement period from 30 days to 5 days. And now this time period has

changed to T+2.

2015- ASBA made compulsory for investors. This step boosts the participation of retail

investors in IPO.

2. Company’s Introduction Indo Thai Securities is an India based Stock Broking Company providing trading services in

Indian Equity Market. The parent group of Indo Thai Securities is Indo Thai group which has

13 financial companies under its umbrella. Company targets net worth individuals and retail

investors across India for its services. Company operates its business from Indore, MP and

business from more than 60 locations across 6 States of India including 14 branches in all over

India.

Sector Finance (Brokerage house)

Incorporation 1995

Registered office Indore (M.P.)

Listing 2nd Nov 2011

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Key Persons Parasmal Doshi (Chairman & Whole-time Director)

Rajendra Bandi (Whole-Time Director, Operations)

Dhanpal Doshi (Managing Director & CEO)

Main Competitors Delta Corp

DB (International) Stock Brokers

IPO details-

Issue Open Sep 30, 2011 - Oct 5, 2011

Issue Type Book Built Issue

Issue Size Rs. 29.6Cr.

Face Value Rs. 10/share

Issue price Rs. 70-84 per share

Market lot 80 shares

Listing at NSE, BSE

QIB subscription 0.00 times

NII subscription 0.02 times

RII subscription 3.35 times

3. Risk Factors As per Regulation 16 of SEBI (ICDR) Regulations, 2009 the company have to appoint

an auditing committee for monitoring the use of money raised from IPO. But I saw that

company is using that money for trading, investing and paying off their liabilities the

appointed committee didn’t mentioned that till.

Before IPO, company was having profit. But if we talk for cash flow, it was negative.

[ RHP]

Company showed that they are generating their revenue from the brokerage business,

but if we see the after IPO scenario, company is generating their revenue from trading

and investing, which is not anywhere mentioned in the money raising objective of

company [On the page no. 20 of RHP].

SEBI has referred the company’s name, when the chairman of SEBI UK Sinha was

talking about Listing day manipulations. [1]

Company have invested the money in 247 companies, in which some are performing

and some are sought of dead investment. [2]

Company don’t have efficient fund manager, as they are continuously posting losses in

F&O segment and sometimes in investments also. [3]

A sceptical investor can’t invest in the company after seeing the past track of company.

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QIBs didn’t applied in this IPO and it get closed at a loss of 69% from the issue price.

And now NIIs also withdrawn their money from this company.

4. Reasons for Introduction of IPO Expansion and upgradation of our Existing Branches and Set up Network of Branches

Purchase of Office space for Mumbai regional office

Purchase & set up of Office space for Corporate office

Brand Building & Advertising

Augmenting Long Term Working Capital Requirement

General Corporate Purpose

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5. Financial Performance-

Balance Sheet of Indo Thai Securities

Comment- Company used Rs. 3.41Cr. for the payment of debt, 0.2Cr for Fixed asset

development, 12.44Cr. for investment and 11.21Cr. retained as cash with them.

Pre IPO Post IPO

31/03/2011 31/03/2012

EQUITIES AND LIABILITIES

SHAREHOLDER'S FUNDS

Equity Share Capital 6.00 10.00 66.67%

Reserves and Surplus 1.90 25.96 1266.32%

Total Shareholder's Funds 7.90 35.96 355.19%

NON-CURRENT LIABILITIES

Long Term Borrowings 0.20 0.08 -60.00%

Deferred Tax Liabilities [Net] 0.01 - -100.00%

Other Long Term Liabilities 0.11 0.10 -9.09%

Long Term Provisions - 0.21 100.00%

Total Non-Current Liabilities 0.32 0.39 21.88%

CURRENT LIABILITIES

Short Term Borrowings 1.31 - -100.00%

Trade Payables 4.10 2.02 -50.73%

Other Current Liabilities 0.47 0.52 10.64%

Total Current Liabilities 5.88 2.54 -56.80%

Total Capital and Liabilities 14.10 38.89 175.82%

NON-CURRENT ASSETS

Tangible Assets 2.16 2.28 5.56%

Intangible Assets 0.03 0.02 -33.33%

Fixed Assets 2.19 2.30 5.02%

Non-Current Investments 0.43 0.43 0.00%

Deferred Tax Assets [Net] - 0.07

Long Term Loans and Advances 2.00 2.03 1.50%

Other Non-Current Assets - -

Total Non-Current Assets 4.62 4.82 4.33%

CURRENT ASSETS

Current Investments 0.36 12.80 3455.56%

Inventories 0.08 0.20 150.00%

Trade Receivables 2.00 2.00 0.00%

Cash and Cash Equivalents 6.77 17.98 165.58%

Short Term Loans and Advances 0.14 1.03 635.71%

Other Current Assets 0.13 0.06 -53.85%

Total Current Assets 9.48 34.06 259.28%

Total Assets 14.10 38.89 175.82%

% ChangeParticulars

ASSETS

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Profit & loss account

Comment- Here company didn’t get all the operating revenue from brokerage but more than

50% revenue came from the sale of shares, which they bought in the year 2012 only. They

bought this shares @ Rs. 29,773,987 and sold for 27,721,157 and also incur a loss of Rs.

7,476,125 in F&O segment. After 2012 the situation is getting worsen, their major revenue is

coming from trading which is not acceptable for the companies operating in this industry.

Ratio Analysis

Earnings per share of company has decreased by 85.39% because on increase in

operating expenses/Turnover ratio by 1024.01%, because of this net profit of margin of

company also decreased by 82.92%.

Pre IPO Post IPO

31/03/2011 31/03/2012

INCOME

Revenue from Operations 4.06 4.99 22.91%

Other Operating Revenues 0.59 0.17 -71.19%

Total Operating Revenues 4.65 5.16 10.97%

Other Income 0.5 1.58 216.00%

Total Revenue 5.15 6.74 30.87%

EXPENSES

Operating and Direct Expenses 0.27 3.73 1281.48%

Changes in Inventories Of FG, WIP and Stock-In Trade -0.06 -0.11 83.33%

Employee Benefit Expenses 1.24 1.03 -16.94%

Finance Costs 0.55 0.22 -60.00%

Depreciation and Amortisation Expenses 0.13 0.11 -15.38%

Other Expenses 1.39 1.26 -9.35%

Total Expenses 3.52 6.24 77.27%

Profit/Loss Before Exceptional, Extraordinary Items and Tax 1.63 0.5 -69.33%

Exceptional Items 0 -0.18 100.00%

Profit/Loss Before Tax 1.63 0.33 -79.75%

Current Tax 0.57 0.2 -64.91%

Deferred Tax -0.01 -0.08 700.00%

Total Tax Expenses 0.56 0.12 -78.57%

Profit/Loss After Tax and Before Extraordinary Items 1.07 0.2 -81.31%

Particulars % change

Particulars 31/03/2011 31/03/2012 % change

EPS 1.78 0.26 -85.39%

Net Profit Margin (%) 22.89% 3.91% -82.92%

ROCE (%) 12.96% 0.55% -95.76%

Return on Assets (%) 7.55% 0.51% -93.25%

Total Debt/Equity 0.19 0 -100.00%

Current Ratio 1.61 13.44 734.78%

Quick Ratio 1.6 13.36 735.00%

Operating exp/Turnover 5% 72% 1271.06%

RONW (%) 13.49% 0.56% -95.85%

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Company reduced their debt equity ratio by 100%. As they paid off their all the debt.

Liquidity position of company is good as they have current investment and cash reserve

with them.

ROA of company gets reduced by 93.25% as they have invested more money in assets

but not able to generate revenue from that.

ROEC also get reduced by 95.76%. Because profit of company is decreased, even after

employing more capital.

6. Change in shareholding pattern

Share holding pattern

Comment- Promoters Increased their stake in the company till the share price was under Rs.

15 per share. Even in public holding 3,40,065 shares are held by relatives of promoters.

Meanwhile promoters are finding valuation of Rs. 15 per share to be attractive to invest more

in company. So, if this share is available below Rs. 15 per share, I recommend to buy this share,

despite all the problems.

PTO

Pre IPO

2011 2012 2013 2014 2015 2016

Promoters 5094300 5094300 5594000 6093900 6593450 6593450

Body corporates 118500 1786506 1011559 754746 467580 327254

Public (Indian) 787200 3115064 3394056 3150969 2936440 3071326

(NRI) 0 4130 385 385 2530 0

Total 6000000 10000000 10000000 10000000 10000000 10000000

Category of shareholderPost IPO

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7. Share Price Performance

Yearly Prices and Profits

Chart (From listing date)

Open Price 76.00 Open Price 10.30 Open Price 13.00

Closing Price 23.15 Closing Price 10.30 Closing Price 10.50

High Price 98.90 High Price 10.80 High Price 10.05

Low Price 18.85 Low Price 10.00 Low Price 10.05

Open Price 11.00 Open Price 15.70 Open Price 24.65

Closing Price 12.30 Closing Price 15.70 Closing Price 25.00

High Price 13.25 High Price 15.70 High Price 25.50

Low Price 11.00 Low Price 14.70 Low Price 24.65

Profit in 2011 1.06Cr. Profit in 2012 0.2Cr Profit in 2013 -0.07Cr.

Profit in 2014 0.69Cr. Profit in 2015 2.41Cr. Profit in 2016 6.54Cr.

Listing Day

2nd Nov 2011

As on

30th March 2012

As on

28th March 2013

As on

31st March 2014

As on

31st March 2015

As on

30th June 2016

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Returns

Comment- We can see the return from two different perspectives. First from the point of view

of people who have invested in Primary market (IPO) and second from the people who

purchased the stock on the closing price of listing day

If any person has invested money in IPO and selling at closing price, he will be incurring a loss

of 68.72% (For further gain or loss refer Return (Primary market table at various point of time)

And if we assume that the person has invested his money on closing of listing day, then he will

be getting negative return of 55.51%.

Year Closing Price Return Year Closing Price Return

Listing 23.15 Cutt off price 74.00

2012 10.30 -55.51% Listing 23.15 -68.72%

2013 10.50 1.94% 2012 10.30 -55.51%

2014 12.30 17.14% 2013 10.50 1.94%

2015 15.70 27.64% 2014 12.30 17.14%

2016 25.00 59.24% 2015 15.70 27.64%

CAGR 1.55% 2016 25.00 59.24%

CAGR -19.51%

Return

(Primary market)

Return

(Secondary market)

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8. Conclusion If we see the company in a prima facie manner, then we can say that company is able to

implement their turnaround strategy successfully but actual situation is totally different.

If we rigorously analyse the company, we can see that major part of company’s revenue comes

from trading in stocks. But, As the company is not investment company, it is expected to

generate revenue from brokerage.

Company has invested the money in dead shares and also it is continuously incurring losses in

F&O trading. So, here we can interpret that company is high risky and we can see lack of

expertise in fund managers.

If we see company’s past track, then also we will see misrepresentations. When company went

for IPO, they shown their objective as expansion orientated. But they used most of the funds

for two purposes. First is for trading & investing in securities and second is for paying off their

liabilities. Which is not shown in their list of objectives.

Why price went up and suddenly declined significantly??

Vikabh Securities Pvt ltd bought 7.50 lakh shares worth Rs5.73Cr. on the BSE and Asian

Market Securities Pvt Ltd put in a similar amount buying the same number of shares on the

NSE, both firms entered at a price of around Rs76.4 and exited around Rs93.8, mopping up a

consolidated profit of Rs2.61Cr. in just few hours. [4]

Open Price Closing Price High Price Low Price

76.00 23.15 98.90 18.85

Listing day data

2nd Nov, 2011