The Indian market is witnessing various IPOs of all sizes – from small to large. In line with this trend, the launch of another IPO: the Sirca Paints IPO takes eminence.

The IPO came out on the 16th of May 2018 and it plans to raise Rs. 77.91 crores. The issue is open until 22nd May 2018.
Minimum lot size for a retail investor is 800 shares issue at Rs 160 each.

Sirca Paints IPO Info

Details Info
Issue opens on 16th May 2018
Issue closes on 22nd May 2018
Issue price Rs.151 – 160
Face value Rs.10
Minimum lot 800
Minimum investment Rs.1,28,000
Issue constitutes 26.65%
Issue size Rs.77.91 cr
Market cap Rs.292.3 cr
Listing at NSE SME
Total equity shares offered (fresh) 48,69,600
Equity shares prior to the issue 1,34,00,000
Equity shares after the issue 1,82,69,000

Sirca Paints IPO Details

The IPO of Delhi based company has opened on May 16, 2018. The Offer consisted of fresh issue of upto 48,69,600 equity scrips of face value amounting to Rs. 10 fully paid up for cash at a price band of Rs. 151-160 totalling to Rs. 7,791.33 lakhs.
The scrips will be listed on the National Stock Exchange Emerge Platform.

The book running lead managers of the IPO is Navigant Corporate Advisors Limited. The closing date of the issue will be May 22, 2018.
Offered at a price to earnings (PE) ratio of 19.09 against the industry average of 41.30, the lot size for scrips is a minimum of 800 equity shares and in multiples of 800 equity scrips.

59.62 % of the issue reserved for qualified institutional buyers (QIB) will be given to anchor investors on a voluntary basis. The QIB will account to 49.69% of the IPO.

Objects of the Issue

1. To finance the expenses of site development and purchase of plant and             machinery;
2. To divide finance increased working capital needs of the company;
3. To meet the general corporate purposes;
4. To meet the expenditures of the issue.

Management Team

  1. Sanjay Agarwal (Designation: Managing Director)
  2. Apoorv Agarwal (Designation: Jt Managing Director)
  3. Gurjit Singh Bains (Designation: Non-Executive, Non-Independent Director)

Promoters Stake Pre & Post Issue

Shareholder Name Pre Issue Stake (%) Post Issue Stake
Sanjay Agarwal             43.88 32.18
Apoorv Agarwal               2.75 2.02
Gurjit Singh Bains              19.24 14.11
Promoter Group Entities:              25.92 19.02
Total             91.79% 67.32%

Promoters Average Acquisition Cost

Name of the Promoter No. of Shares held Average Acquisition Cost (in Rs.)
Sanjay Agarwal 58,79,646 0.96
Apoorv Agarwal 3,69,000 0.33
Gurjit Singh Bains 25,77,465 0.89

Sirca Paints Company Details

Sirca Paints handles marketing and trading of paints and related products after repackaging the same. Sirca Paints gets the products from Sirca Spa Italy through import and sells them in the country through its distributors.

In addition, Sirca Paints also gets the products like thinners, abrasives and buffing cream from other suppliers based in the country. Except for the thinner and abrasives, which are bought from Indian suppliers, all other purchases are made from foreign countries and the products which are bought from Indian suppliers and sold out within the country itself.

Sirca Paints has entered into a Manufacturing License Agreement dated 16th February, 2018 with Sirca Spa Italy under the mark, “SIRCA”, for producing the following products that are presently distributed under the Product Distribution Agreement.
Pursuant to this agreement, the company also has an exclusive right to manufacture the following products in India, under the mark, “SIRCA” – Paints NC, Paints AC, Thinner, Polyurethane Products.

The company in the territory of India, Nepal, Sri Lanka and Bangladesh has a minimum sales of Four Million and three hundred thousand euros. The expect to achieve Four million and eight hundred thousand euros in the year 2018 -2019, respectively.

Financial Performace

On the performance front, in the past four financial years, the company has generated a turnover/net profits of Rs. 54.08 crore / Rs. 1.97 crore in Financial Year’14, Rs. 69.77 crore / Rs. 6.18 crore in Financial Year’15, Rs. 72.66 crore / Rs. 7.28  crore in financial Year’16 and Rs. 84.34 crore / Rs. 13.70 crore inFinancial Year’17.

For the first nine months which ended on 31.12.17 of Financial Year’18, it has made a net profit of Rs. 14.60 crore on a turnover of Rs. 64.70 crore. In the past three financial years, it has incurred an average earning per share of Rs. 8.38 and an average return on net worth of 39.89 %.

It has also incurred a growth in the bottom line for the last four financial year’s which is astonishing, as it is mainly present in the trading business. The IPO is priced at a price/book value of 4.07 on the basis of an NAV of Rs. 39.31 as on 31st March, 2017.

If we annualize latest earnings and attribute it on a fully diluted post issue equity, then the asking price is at a price/earnings of around 15 against the industry average of around 41.30.
However, its earnings for Financial Year’17 and nine months of Financial Year’18 is rather surprising and it may not sustain a forward go.It is also treading on a  green -field project in a capital-intensive sector, which faces heavy competition and the consumer’s taste and preferances keep changing every now and then.

As per documents, it shows giants, Asian Paints and Kansai Nerolac as its listed peers and it is trading at a price/earnings of about 56 and 53. As per market reports, these companies are selling products at much cheaper rates, which can be a problem for  Sirca Paints .Thus, despite a good offer price, the IPO looks like a risky bet.

Particulars For the year/period ended (in Rs. Millions)
31-Mar-17 31-Mar-16 31-Mar-15 31-Mar-14 31-Mar-13
Total Assets 6,131.25 4,507.57 3,341.52 2,910.05 2,173.65
Total Revenue 8,434.17 7,266.09 6,976.85 5,408.00 3,402.29
Profit After Tax 1,370.34 727.62 617.88 197.11 50.40

Sirca Paints Valuation

Earnings Per Share (EPS): INR11.14

Price/Earnings (P/E) ratio: 13.55 – 14.36

Return on Net Worth (RONW): 40.26%

Net Asset Value (NAV): INR27.67 per share

IPO vs Mutual Funds

If you have no knowledge of the equity markets but are looking to gain from the equity markets, mutual funds are ideal. Investments can be made in Mutual Funds since they provide a wide variety and also, the amount of investment can vary as per investor’s preference.

Many mutual funds invest in IPOs and many times at discounted rates that are not available to retail investors.

It is necessary to not get carried away by the hype surrounding IPOs. One must not jump into IPO if he/she does not have the necessary skills.

In a mutual fund, a skilled and trained professional handles all investments for the investor and therefore, the investor can benefit from the equity markets without spending too much time gaining the skills needed to understand the markets.

Following are the different funds:

  • Large Cap Funds– The investment here is made in large-cap companies. These companies offer 12-18% return. Moderate risk is involved and it is suggested that an investor invests for 4 or more years.
  • Mid Cap Funds– Here the investment is made in mid-cap companies. These companies offer 15-20% return. Moderately high risk is involved and it is suggested to invest here for 5 or more years.
  • Small Cap Funds– Here the investment is made in small-cap companies. These companies offer 15-20% return. High risk is involved and it is suggested to invest here for 6 or more years.
  • Balanced Fund– This fund is a combination of equity and debt funds, in its portfolio. Depending on the proportion of investment made in Equity and Debt, the risk and returns are determined. It is suggested that one invests for 2 to 3 years. Returns in this fund range from 11-14%.

Investment can be made via lump sum investment or through SIP (Systematic Investment Plan) mode in any of these funds.

Moreover, return is something that cannot be promised but these return estimates are given on the basis of past performance.

Mutual Funds for 2018

Large Cap Fund:

These funds invest in large companies that have a history of good performance and stable balances.

Mid Cap Fund:

These are funds that are high risk – high return. They’re a bit riskier than large-cap funds.

Small Cap Fund:

These are the funds that you can invest in, if you want high growth. They constitute a large magnitude of risk

Happy Investing!

Disclaimer: the views expressed here are of the author and do not reflect those of Groww.