Is Nureca's IPO fraudulent?

Rs. 100 crore IPO kicks off, but credentials are suspect; Promoter has a dubious past

Nureca Limited is tapping the capital markets with its fresh issue to raise Rs 100 crore in the price band of Rs 396-400. The issue opened on Monday the 15th of February and closes on Wednesday the 17th of February. Earlier the company on Friday had allotted 11,13,750 equity shares to two anchor investors.

The company is in the business of home wellness and healthcare products and operates in the B2C segment. The company sells its products through e-commerce players and its own website.

This company has produced a questionable top line growth in the six months ended September 2020 where revenues have zoomed to Rs 122.97 crore against Rs 99.48 crore in the previous 12 months. What is even more shocking is the profit after tax at Rs 36.18 cr for the six-month period against Rs 6.39 crore for the previous year. The profit for other years was Rs 6.22 crore and Rs 3.11 crore. What explains the margin expansion leaves one wondering. The promoters have issued themselves a more than handsome bonus of six shares for one in September 2020. There is a preferential issue of 5 lakh shares in October 2020 of which 4.41 lakh shares or 88.2 per cent of the shares have been issued to a stock market intermediary, raising a fishy stink. This preferential offer was done at Rs 100 per share.

The PE ratio is 43.33 to 43.76 times based on March 2020 numbers. The company buys a large portion of its products from a listed group company Nectar Lifesciences Limited which has been struggling and reporting losses. The company has also paid Rs 11.52 crore in the six-month period ended September 20 to the parent as business support services. This company chose not to make potential investors aware about itself through the now convenient and cost-effective method of organising a video conference. Beats me behind the logic of remaining incognito.

In what may just be coincidence, the promoters of the company were subject to a search and seizure operation by the income tax department in the first fortnight of December 2020 for three days. Cash, jewellery, ornaments and mobile sets were seized from some of the persons concerned. While the promoter states that they have disassociated from the promoters of Nectar Lifesciences Limited, things still remain cloudy and murky. The company states that there are no comparable companies and has therefore chosen not to give any names of the peer group. Sounds quite odd as products like nutraceuticals and healthcare products are available dime a dozen. Almost all pharmaceutical companies have entered this business and are selling products.

To sum up, a trading company having a dubious past where the promoter has been unsuccessful in his earlier venture, separating from the family and starting a new company.

This is a wholly owned company of a private limited company and shares are issued to the promoter free of cost. For five years nothing much happens. Suddenly during lock down, sales zoom and profits sky rocket.

The management cashes out big time and issues a bonus of 600 per cent. To get the share issue stage managed he also does a private placement of 5 lakh shares at Rs 100. And to cap it all, a public issue of Rs 100 crore at a price of Rs 400. This says it all.

Robinhood investors, take your call in subscribing to such an issue where credentials are suspect and the share would trade in the trade-to-trade category for the first 10 trading sessions.

(The author is the founder of Kejriwal Research and Investment Services, an advisory firm)