Touchwood Entertainment NSE SME IPO review (Avoid)

Touchwood Entertainment Ltd. (TEL) is specializes in Events Management, offering all clients a complete variety of event facilities, ranging from event planning & marketing to production and legal services for the events. At Touchwood Entertainment, the mindscapes are an expression of the myriad skills that have been honed with each event. It’s in-house designing & production facilities are pivotal pillars that allow it to serve clients and actualize their dreams better in planned time.

To part finance its repayment of existing loans, capital expenditure for expansion, general corpus fund needs, TEL is coming out with a maiden IPO of 1053000 equity shares of Rs. 10 each at a fixed price of Rs. 40 per share to mobilize Rs. 4.21 crore. Issue opens for subscription on 11.12.17 and will close on 13.12.17. Minimum application is to be made for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. Issue constitutes 25.86% of the post issue paid up capital of the company. Issue is solely lead managed by Corporate Capitalventures Pvt. Ltd. and Skyline Financial Services Pvt. Ltd. is the registrar to the issue. The average cost of acquisition of equity shares by the promoters of the company ranges from Rs. 3.68 to Rs. 8.50 per share. It has issued most of its equity at par between inception and February 2009. It converted loan into equity at a price of Rs. 500 per share in March 2006. It made a rights issue at a price of Rs. 11 per share in August 2017. It has also issued bonus shares in the ratio of 4 for 1 (March 2003), 2 for 1 (March 2005), 3 for 2 (December 2005), 3 for 1 (March 2006), 4 for 7 (March 2009) and 1 for 4 (August 2017). Post issue its current paid up equity capital of Rs. 3.02 crore will stand enhanced to Rs. 4.07 crore.

On performance front, TEL has posted turnover/net profits of Rs. 3.93 cr. / Rs. –(0.81) cr. (FY14), Rs. 6.22 cr. / Rs. 0.06 cr. (FY15), Rs. 12.77 cr. / Rs. 0.03 cr. (FY16) and Rs. 13.42 cr. / Rs. 1.01 cr. (FY17). For first five months of current fiscal, it has reported net profit of Rs. 0.33 crore on a turnover of Rs. 3.81 crore. Thus for last 15 months performance appears a bit surprising. It has posted an average EPS of Rs. 2.09 and average RoNW of 19.14% on an equity base of Rs. 2.01 crore. Issue is priced at a P/BV of 2.32 on the basis of post issue NAV. If we annualize latest earnings and attribute it on fully diluted post issue equity then asking price is at a P/E of around 19 plus. It has no listed peers to compare with. Based on track record, issue is priced aggressively.

On merchant banker’s front, this is the 2nd mandate from its stable in past three years. The only listing (Shish Ind.) took place at a premium of around 7% on the day of listing and is currently quoting at a discount of about 12% (as on 06.12.17).

Conclusion: There is no harm is giving this aggressively priced issue a miss. (Avoid).