UMA Exports IPO sails through on the first day; should you invest?

The initial public offering (IPO) of UMA Exports, which opened for subscription on Monday, got fully subscribed on the first day of the offer. The public offer has received bids for 1,94,99,480 shares so far against 92,30,769 shares offered by the company, indicating an oversubscription of 2.11 times till 4.36 PM.

The quota reserved for retail investors has been subscribed more than 2.80 times so far, while the non-institutional investors category has been subscribed over 0.45 times.

The company plans to garner Rs 60 crore through the ongoing public offer. UMA Exports has fixed a price band of Rs 65-68 per share. The issue will close for subscription on March 30.

UMA Exports is engaged in trading and marketing agricultural produce and commodities such as sugar, spices like dry red chillies, turmeric, coriander, cumin seeds, food grains like rice, wheat, corn, sorghum and tea, pulses and agricultural feed like soyabean meal and rice bran de-oiled cake. Most of the market watchers have given an 'Avoid' rating to the issue. Here's what they have to say:

HEM Securities: Avoid Rating

The company being into trading and marketing of agricultural produce and commodities has debt on the book. Although its other ratios like margin and return on shareholder's fund are better than its peers, but looking at business profile and debt condition, HEM Securities recommends ‘Avoid’ on the issue.

Marwadi Financial Services: Avoid

Considering the FY21 adjusted EPS of Rs 3.63 on a post-issue basis, the company is going to list at a price-to-earnings of 18.71 times with a market cap of Rs 229.9 crore, whereas its peer Sakuma Exports is trading at a P/E of 16.20 times. The brokerage assigned an ‘Avoid’ rating to the IPO as the company operates in a competitive environment with low margins profile (EBITDA margin of 2.83 per cent in FY21) and does not offer much value to the investors.

Chittorgarh.com: Avoid

IPO expert Dilip Davda of Chittorgarh.com also gave 'Avoid' rating to the issue. Davda thinks that UMA Exports' financial performance has shown inconsistency in exports revenue as well as in domestic markets. It has posted super earnings for the last two-and-a-half fiscal which raises concern over its sustainability.

Lower support by QIBs indicates something fishy for this company's records, it said. Its business also carries the risk of seasonality and government policies for commodities trades. Based on its FY22 super earnings, the issue price appears aggressive compared to its peer. There is no harm in skipping this issue, it said.