Shemaroo Entertainment @ Rs 171 fails to Entertain on listing

Had strongly adviced to skip the Issue

Shemaroo Entertainment ~ IPO @ Rs 155-170 ~ Avoid Applying in this IPO

Extract from above link

“Don’t get seduced by the Grey Market Premium of @ Rs 40 and the 10% discount to Retail Investors on the Issue Price that will be fixed and by prominent anchor investors involved…. We advice you to give this IPO a Miss”

The IPO Price was fixed at the top end of Rs 170 …..Retail Investors were allotted at Rs 153 after the 10% discount offered to them

The IPO was subscribed 7.39 times with bids received for 4.22 crore shares, compared with 57.20 lakh shares on offer.

The qualified institutional buyers’ (QIBs) category was subscribed 5.69 times, non institutional investors’ category was subscribed 8.64 times and retail individual investors’ (RIIs) category was subscribed 7.79 times.

Given the risks involved I wonder how the grey market Pre IPO premium of Rs 40 was created !?

Surely all the IPO Applicants must have had Stag Intent and to sell on listing !?

Except for Retail Allotees who yet have this 10% gains margin on yesterday’s debut closing price of Rs 170,all the others have no margin

Not confident of the Price moving to Rs 200 and beyond

Perhaps Retail Investors need to consider to book this 10% …the bigger guys can decide for themselves

Update on October 12,2014

The Share Price is now down to Rs 154 levels wiping off the 10% gains margin that Retail Allottees had courtesy of the 10% discount on the IPO price of Rs 1870 given to them

The Company’s Investor Relations Guy had read my above post and connected with me inquiring that if I was right then what explains HDFC Mutual Fund,the Anchor Investor,also buying 250000 Shares in a Bulk Deal on listing Day October 1,2014 at Rs 174.60

This is how the conversation had gone…..

• So why are reputed investors like Hdfc buying even as anchor, in qib and on listing day more? Is there Something fundamentally missing that the retail community is not understanding? I think so…
•  Me :  You’re assuming HDFC is wise…maybe…they are convinced and seek a certain exposure …that’s the beauty of Equities…always a Buyer and a Seller…but as of now and at this price I don’t see fundamental value in it…running it up otherwise is of course another play…..we all have our risk profiles…I suppose each to his own counsel…Cheers ! 🙂 

•   Dear Gaurav ji, we manage shemaroos Investor Relations, would love to meet you and understand your concerns and address them and explain you the fundamentals of their business and strategy before you make a judgement on their fundamentals…. 

Have yet to hear him explain the fundamentals and strategy of Shemaroo to me…and if convinced will showcase them to all of you

Update on October 17,2014

The Young Gentlemen who manages Investor Relations for Shemaroo and who had connected with me recently as above came and met me on the evening of October 14,2014…he was very passionate about Shemaroo and their business potential going forward as with their huge library content they were poised to exploit digital platforms and also purchase rights for second and third cycles of newer movies  at cheaper cost

Incidentally HDFC Mutual Fund bought another huge lot of 175000 shares from Ashoka PTE on October 10,2014 @ Rs 152.25 on NSE…earlier they had bought 450000 shares,364788  of them from Morgan Stanley too on day of Listing at @ Rs 177.04  on NSE  and also done a Bulk Deal on BSE too same day as stated in the October 12,2014 update  above….Both Ashoka PTE and Morgan Stanley Mauritius must be IPO Allotees at Rs 170 as they do not appear in the Prospectus as Shareholders and clearly appear to be Stag Funds with Mandate to sell on Listing or a few days within Listing !….makes me wonder if this was  an arrangement and exercise planned  pre IPO  and actioned during IPO and on Listing between these allottees and HDFC MF

Incidentally HDFC Bank feature as Lenders to Shemaroo too with Financials showing they had sanctioned an unsecured Loan of Rs 15 crs as of which Rs 13.97 was drawn as on July 31,2014

Perhaps HDFC Bank & HDFC MF knows something we don’t !

Shemaroo has negative Net Operating Cash Flows with Inventories & Receivables having gone up considerably to tighten the working capital scenario ….and most secured loans have hit  the  various banks sanctioned limits

If these IPO Proceeds are not largely used to ease the outstanding debt situation but instead for buying more film & content rights the next one or two years may yet see net operating cash flow pressures

FY 14 PAT was Rs 27.84 crs despite this pressure with Rs 18.70 crs as Interest on Borrowings…Equity then was Rs 19.85 crs (FV Rs 10) giving an EPS of Rs 14 (dividend was just 5% or Rs 0.50 as most shares pre IPO were held by the Promoters)….Networth was Rs 177.45 crs giving a Book Value of Rs 87.9

Post IPO Equity is now Rs 27.18 crs with Reserves climbing to Rs 270.26 crs from the IPO Proceeds of Rs 120 crs giving a Post IPO Net Worth of Rs  297.44 crs giving a Book Value of Rs 109.43….Q 1 & Q 2 FY 15 Results are not factored in

If  IPO Proceeds are used prudently one can expect Interest Charge too fall significantly…ROI too can be moved up well

Can PAT for FY 15 or at least in FY 16 cross a non linear Rs 50 crs  with reduced Interest charge and higher scale operations and incremental revenues from new age digital platforms harnessing newer technology ?…that would give an EPS closer to Rs 20

Risks do exist…Film Star Jackie Shroff has filed a recent July 2014 civil suit against Promoters for being treated shabbily as a minority shareholder in one of the Promoter associate companies…..Conflict of Interest exists as Promoters have other companies too in similar line of business

Price this morning of Friday,October 17,2014 has dropped further to Rs 146 levels and Volumes are already down to just a few thousands

Wonder if HDFC MF will yet again buy more on declines !?…they were Anchor at Rs 170,then bought at Rs 177 on Listing,then again at Rs 156 ten days later…..it’s now Rs 146…in their Schemes,including their Monthly Income Long Term Debt Scheme (indicates high safety with @ 75 % invested in Debt Instruments & only @ 25% of a Corpus Value of Rs 3558  crs as on September 30,2014 invested in Equity of just 35 Companies) ,  they collectively hold 2173245 Equity Shares or  8% of the Equity till date that cost them an aggregate of Rs 37.50 crs  at an average of Rs 172.59 the value of which inside days is now down over 15% to Rs 31.73 crs @ Rs 146 per share !…That’s a big ‘Yes’ by them to Shemaroo !

So now the Promoters, the Three Maroo Brothers and family hold 65.82% and HDFC MF Schemes hold 8% giving an aggregate of 73.82 % for both  

Readers can make their own judgement appropriate to their risk profile and compare the company with peers on at least relative valuations