4 new IPOs coming; should you go for them? Here’s how Abhishek Gaoshinde rates them

What are the concerns for Aegis Vopak Terminals IPO?
Abhishek Gaoshinde: Prima facie, this company caters to the oil and gas segment. Largely it is a third party owner and operator of tank storage terminals. So, almost its business is spread across the five major ports with 18 storage terminals. Aegis Vopak is largely a joint venture company between Aegis Logistics and Royal Vopak. Aegis owns almost 50% stake in the company and Vopak has a 47% stake. Broadly the company is raising funds to repay its debt.

The business model of the company is that its whole performance depends on the kind of capacity utilisation it would have at a given point of a time. In light of that, despite being the debt repayment, there is no material visibility seen based on the available numbers on the table that because of this debt repayment its operating profitability or operating performance would improve. It has already reached a 70% kind of capacity utilisation. So, for further growth, either it should have to expand its existing capacity or go for inorganic growth. So, on both sides it would require new addition of funds to deploy in the business, else its growth would be capped.

Third thing is that its ROEs are in the single digit but given that it is a high capital-intensive business, the capex to operating ratio is significantly high, and means whatever be the operating profitability you are generating, a significant part of that you need to deploy again in the system. In that way, your growth would be capped until or unless your capacity utilisation would increase along with the addition of the capacity.

Fourth, there is some kind of a conflict of interest is also there because Aegis Logistics is in a similar kind of a business and which also utilise its terminal for imports and all these things, so some kind of independence from the promoters is required for a minority shareholder to bet on these kind of a companies.

Live Events

I want your attention on the part where you mentioned conflict of interest. Although it is disclosed now, they have properly said that this is the business we are doing. Yes, promoters are also involved. How will it impact minority shareholders if you can explain that point.
Abhishek Gaoshinde: Minority shareholders are not investing in Aegis Logistics. They do not want them to interfere in this kind of a business. There should be independence of decision making or independence of the utilisation of its own resources. For example, if in any case, a promoter has a similar kind of a business, one can say that things are happening at the arms’ length basis but some kind of a doubt always remains in the mind of a minority investor that should be cleared out from the management side.As for the Schloss Bangalore IPO, what do the fundamentals suggest over there?
Abhishek Gaoshinde: Schloss is largely in the luxury hotel segment. It has almost 13 properties in India and in these 13 properties, five are its own, seven are on the management contract basis and one is on the franchisee basis. The critical thing here is that almost 94% of its revenues come from the five properties. So, although it has a larger capacity, only 34% are really contributing to the revenue. The company has a plan to expand these 13 properties to 20 over the period and adding almost 19-20% to its revenue. But there is a concern that when the existing non-owned properties are not contributing so much to the revenue, what would happen next to this additional capacity is difficult to say at this point of time. Secondly there is a limited financial history to build up confidence because for FY23 and FY24, we see that the company has reported loss in the P&L and with this loss, its net worth was negative and that is a concern. Third is the valuation. It has only 13 properties and reported almost Rs 48 crore profit in FY25. Its market cap to sales is coming out to be 11 times which I think is not available at a cheap valuation.

What do financials suggest for Prostarm Info IPO?
Abhishek Gaoshinde: In nine months of FY25, it reported roughly Rs 22 crore profit with a double-digit EBITDA margin of 13.4%. But the crux does not lie in this P&L, it lies in the cash flow. So, despite this double-digit EBITDA margin, the company has reported operating cash flows and this is because the company’s overall business model is working capital intensity.

So, a larger part of operating profitability has been eaten away by the working capital requirement. In recent days, its working capital days was over 100 and that is the key concern and the second major concern is that the company is raising almost Rs 168 crore from this IPO and 43% of that fund the company wants to utilise for the working capital requirement.

It means the company is raising funds from long-term resources but utilising it for short-term requirements and this is a major concern because in this way we are not getting the way or the visibility where from the future growth would come into the company, considering that the double-digit EBITDA margin or profitability will not give any kind of visibility or future prospects of the company.

What is your view on Scoda Tubes?
Abhishek Gaoshinde: Again, prima facie it is also following this working capital intensive business model in which again the same thing is happening that the operating profitability is not converting directly into the operating cash flow and in that way the concern related with its growth will continue because out of its total gross proceeds from the IPO, 50% of that it is going to utilise for the working capital requirement only.

In this way, we do not know what would happen with this company in next year when it will again require for a working capital because if due to working capital requirement, the promoter holding is coming down or equity is diluting in this year, one can say that next year, if there is no get working capital requirements or working capital funding from the banks, it will have to go to the investors for working capital funding and the further equity dilution may happen.

Second, it follows this stockist-based business model in which its performance depends on the stockists and thirdly, the stainless steel tube segment is highly fragmented and Scoda has only 5-7% market share. Until and unless the company would completely get a solution for this working capital requirement, it is very difficult to say what would be the future of the company in the next three to five years.

Can you summarise the rating for all these four IPOs?
Abhishek Gaoshinde: For Aegis, I will go with a 3.5 out of 10. For Schloss, I will give 4 because of its presence in this luxury hotel segment and for Scoda and Prostarm, I will give 2.5 because of their working capital intensive business model.