Burnpur Cement

No of shares: 20.8 million
Issue Date: 28th Nov – 3rd Dec
Price Band 12/-

This is a classic issue which tells us exactly what are the tell tale signs of a bad IPO.
1) The factory has been operational since 1991, and still its growth and performance has been below average. No wonder a share of face value 10/- is going for ipo at 12/- Last year was the first time the company made a profit >1cr.
2) The objective of the IPO is to raise about Rs 26.2 crore to part finance the proposed Rs 500 crore greenfield one million tonne integrated cement plant in Jharkhand. Can someone tell me from where is the rest 474 crore coming?
3) Promoters are offloading 49% stake in the company. They might as well sell it the entire company off, after all Cement industry is on boom and Ambuja Cement (sensex stock) and L & T cement (another blue chip) actually did that recently.

4) The company boasts that it has made a profit of 1.14 Crore (on a proposed market capitalization of 53cr resulting in an EPS of < Rs 1.) but you have to read its balance sheet to realize that this profit was partly because of a trading profit of over 4 crore. (Now this confuses me, should i categorize this company as a trading firm or as a manufacturing firm?)

5) One should not forget that the profitability of the company is partly due to the scarcity of cement and high prices.. so consistency is not guaranteed, infact that company has a track record of making losses and has a meager revenue of 26 Crore.

6) The company has over 90 crore in debt (a sum equal to almost 4 years of revenue)…. i wonder if even the banks can give them one extra penny.

7) The company says the IPO is to enable its backward integration into clinker… but tell me why would you make 100s of cr of fresh investment in a raw material plant to save 1-2 pennies on your annual revenue of 20cr. This defies all logic and commercial prudence!

In short this issue is the fastest way to penury. BTW the reason for this post is that MoneyControl and several other yellow journalists have assigned 3 star rating to this issue and even ICICI has recommended people to apply.