Warren Buffett’s words on IPO continue to ring true — “It’s almost a mathematical impossibility to imagine that, out of the thousands of things for sale on a given day, the most attractively priced is the one being sold by a knowledgeable seller (company insiders) to a less-knowledgeable buyer (investors).”
- 2008-2013 soft drink market has been growing at 20% CAGR
- The soft drink market is expected to grow at 14% CAGR between 2013 and 2018
- Mango Sip is a single product contributing to 98% of the sales for the company
- 17 crores of net debt versus 157 crores of net worth; net debt is pretty low
- Return on equity for last three years has been 11.9%; 30.4% and 21.9%
- Net profit declined from 2013 to 2014 by 10% from 22 crores to 20 crores
- First four months of 2014, the company clocked 15 crores in net profit and 148 crores in sales (against 293 crores preceding 12 months — goosed up before IPO?); 9M 2015 sales is 239 crores and profits are 13 crores;
- The issue size is for 400 crores, the company has outlined proposals to use up around 270 crores to building a new plant, setting up a new corporate office, drawing down corporate debt etc. and rest to be used for corporate expenses (what does that even mean?)
- At expected market cap at 1400 crores to 1600 crores based on the IPO price; and expected 12 months trailing earnings at INR 20 crores, we are looking at a trailing PE of 70 to 80;
- Very aggressive sales growth assumptions are built into the IPO price to justify the valuations
As Warren Buffett mentioned above, we are going to sit aside and watch this company play over the next couple of years.
Beowulf Capital 