Onelife Capital's IPO doesn't have sound fundamentals

Stay away from Onelife Capital Advisors (Ocal) IPO. The warning should be loudly and clearly put out even before we get into what the company does or what’s wrong with the public issue.

Ocal is a financial service company offering investment banking services and is venturing into portfolio management and equity broking services. Incorporated in 2007 by TKP Naig and Pandu Naig, the company was converted into a public limited company in December 2010 with a special focus on nurturing small and medium sized enterprises (SMEs).

Till last year, the company had undertaken only five advisory or fund-raising activities and has no substantial experience to claim public money.

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The objectives of the IPO are even stranger. The company plans to spend IPO money on buying a corporate office in Mumbai (at a cost of Rs 7 crore); development of portfolio management services (at a cost of Rs 11.58 crore); and brand building exercises (at a cost of Rs 7.7 crore).

The balance Rs 37 crore from the public will be used for general corporate purposes in order to “achieve the benefits of listing on the stock exchanges”. It’s difficult to even fathom what the last part means.

The matter gets complicated by promoter history. Sai Broking, another promoter group company, was issued a show-cause notice by Sebi in 2007 and 2008. The company is not functional any more and has applied for consent on both the issues. Sebi has also “advised” Ocal for failing to notify it about the earnings once in 2010. If Sai gets its approval to operate again, being a stock broking company of the same promoter group there is a clear chance of conflict of interest.

The financial performance and valuations for the IPO actually give it away. The company suffered losses in 2008, 2009 and the first half of financial year 2011. It managed to pull off a profit of Rs 13 lakh in fiscal year 2010. Other companies from the same promoter group have also been reporting unattractive numbers for quite some time now.

Ocal also issued shares to its promoters through 2008 and 2009 at Rs 10 per share. And the same company wants the public to pay in the range of Rs 100 to Rs 110. Earnings per share would perhaps be in the negative, given the Rs 18 lakh loss in the first half of fiscal year 2011. And so, the multiples you pay for each share compared to earnings would at least be a 100.

So, you know why the warning in the beginning!