Shanti Educational Initiatives BSE SME IPO Review (Avoid)

Shanti Educational Initiatives Ltd (SEIL) was originally incorporated as Chiripal Enterprises Limited on May 12, 1988.  The name of Company was changed from Chiripal Enterprises Limited to Shanti Educational Initiatives Limited on April 16, 2010. Chiripal Group is promoted by experienced veterans with proven track records. Today, the group is engaged in diversified businesses in the fields of textile, spinning, weaving, knitting, fabric processing, chemicals, infrastructure, BOPP films etc. and offering employment to approximately 20,000 people associated directly or indirectly with the Group.

SIEL is primarily engaged in the business of providing educational support services to preschools, K-12 and premium category preschools in India. Three business units of the company are as under:

Shanti Juniors: With 154 franchised preschools under the brand name of “Shanti Juniors” spread over western, southern and northern region in India, we are rapidly growing popularity in preschool segment.

Shanti Asiatic School: Under the brand name of “Shanti Asiatic School” there are 6 K-12 schools having over approximately 3600 students.

Shanti's Hopskotch: There are 5 premium category preschools to serve the niche segment which aspire for premium quality education, ambience and learning environment for children under the brand name of “Shanti’s Hopskotch”

 SEIL’s business model is focused on operations through franchisee for preschools and K-12 schools, wherein we enter into agreement with franchisee for a fixed tenure under standard conditions with varied date of commencements and receive a fixed non-refundable onetime franchise fees and a monthly/quarterly/annually royalty on recurring basis for use of it’s brand and teaching methodologies from the franchisee. Apart from Gujarat Company’s presence is also concentrated in the states of Rajasthan, Bihar, Maharashtra, Karnataka, and Tamil Nadu.

The company is coming out with its maiden IPO of 4400000 equity share of Rs 10 each at a fixed price of Rs. 90 per share to mobilize Rs. 39.60 crore.  Issue consists of 3600000 share by way of offer for sale from existing stakeholders and 800000 shares as a fresh issue. To finance its school building project at Vastral in Gujarat and meet general corpus funds needs, company will use funds received from fresh equity issue.  Issue opens for subscription on 01.06.16 and will close on 06.06.16. Minimum application is to be made for 1600 shares and in multiples thereon, thereafter.

After initial contribution at par, it issued shares at a price of Rs. 100 in March 2009. Then again it issued further equity at par during 2011 and 2012. In December 2015 it issued few shares at a price of Rs. 90 per share. Post IPO, it’s paid up equity capital of Rs. 15.30 crore will stand enhanced to Rs. 16.10 crore. Post allotment shares will be listed on BSE SME. Issue is solely managed by Guiness Corporate Advisors Pvt Ltd and Link Intime India Pvt Ltd is the registrar to the issue.

On performance front, for last three fiscals the company has posted turnover and net profit of Rs. 6.49 cr. / Rs. 0.10 cr. (FY14), Rs. 6.67 cr. / Rs. 0.64 cr. (FY15), Rs. 9.17 cr. / Rs. 2.19 cr. (FY16). If we attribute latest earnings on fully diluted equity post IPO then asking price is at a P/E of 66 plus. Its peers are trading at a P/E ranging from 5 to 61 and thus issue appears to be highly priced. 

On merchant banker’s front, this is 20th mandate from it and past mandates have mixed trends.