In a recent phenomenon, stock investors run faster after the debutant companies at the stock markets what market analysts think would ultimately bring losses for them.
After surging on the first trading day and the following few days, the share prices of most companies, which came to the market recently, failed to sustain because of over enthusiasm of investors in the initial days.
Emerald Oil Industries Limited, edible oil producer from rice bran, is the latest of such trend as its stock prices on the first trading day jumped 400% to Tk50 on its offer value of Tk10 each, even beating investors’ expectation.
Volume of shares worth over Tk36 crore was traded, which is the biggest single-day trade by a company in the recent months and made up 10.7% of the DSE’s total trade.
Analysts say price surge in the company’s first trading day might have been resulted from investors’ confidence but not based on fundamentals if its net asset value taken into account.
The company’s restated net asset value is Tk12.25 in 2013. It has reported net profit of Tk1.98 crore for the last quarter ended on December 31, 2013 as against Tk2.42 crore for the same period a year earlier, according to its financial statement.
In the second half of last year (July to December), the company’s profitability declined to Tk3.31 crore, which was Tk3.68 in the same period a year before.
“The company’s debut prices hardly make any sense as there is no fundamental logic behind such price soaring,” said Shahidul Islam, CEO of VIPB Asset Management Company Limited.
Another analyst said: “It is nothing but over enthusiasm.”
Insights on IPO prospectus
The company in its IPO prospectus showed increase in sales, which was partially offset through increased salaries and allowances that was surged three times from June 2012 to June 2013.
Edible oil producer also reported an increase of financial expenses of Tk1.67 crore to a total of Tk8.56 crore. The yearly amount of financial expense exceeds the profit after tax. For the very reason, the IPO proceeds are being used for repayment of term loan, IPO expenses and strengthening the capital base.
The company proposed to invest its IPO proceeds partly for implementation of (Balancing Modernisation Rehabilitation and Expansion) BMRE to increase production capacity.
It planned to go for BMRE to double its capacity so as to produce 60MT of crude oil and 240MT of De-Oiled Rice Bran per day, for which it had bought 2.2 acres of land adjacent to its existing factory and procured two sets of new machinery from India and China.
However, any new project carries some inherent risks and may not be successful or may take long time to secure desired profitability, said the prospectus.
No further detail on the company is available as the company did not upload its latest financial statements that should have been available in its website, the link to which should be provided at the DSE website.
Its initial public offering has been oversubscribed by more than 39 times, according to the Chittagong Stock Exchange. Investors ordered shares worth over Tk784 crore against the offer of Tk20 crore.
