Rupa & Co.-another Lingerie Company-Is it truly widely held

One more undergarment company, Rupa & Co.  got itself listed recently at the Bombay Stock Exchange. This was a company that had done an IPO long ago and was listed at Calcutta and Jaipur Stock Exchanges ( management is Marwari hence the choice of exchanges ). With almost all regional exchanges dead and not trading, the stock had been dormant for quite a few years.

Enthused by the huge valuations that Mr Market has granted to Page Industries ( Jockey licensee) and Lovable ( a split from VIP ), Rupa & Co. also decided to launch itself on the pockets of the investors and chose BSE as the exchange since here is an exchange that is desperate for business and is willing to be more tolerant of corporate governance issues.

Interestingly Microsec, a Calcutta based investment house ( it would like to itself as an investment bank but I will not grant it that title) came out with a report on the eve of its listing at BSE. Now if that is not a managed operation then what is. Nevertheless, dubious that it may be, it is not illegal. I have engaged reputed investment houses, both multinational and Indian, in the past, to write reports in companies where we needed to place equity and they generally did a thorough job ( Its like a credit rating company that charges you to do a rating on you and again they do a good job normally).

I was intrigued by the huge volumes that were generated on the first day of trading and decided to run through the annual report of 2010-11 and the shareholding pattern and this is what emerged.

Distribution of Shareholding as of 31-3-2011

No. Of shares Shareholders Shares
1-500 532 81.84% 54,645 0.69%
501-1000 50 7.7% 43,884 0.55%
1001-2000 12 1.85% 17,682 0.22%
2001-3000 7 1.08% 17,600 0.22%
3001-4000 4 0.61% 15,500 0.2%
4001-5000 1 0.15% 4091 0.05%
5001-10,000 5 0.77% 36,720 0.46%
10,001-above 39 6% 77,62,334 97.61%
Total 650 79,52.456 100%

Just before listing, the company decided to split the stock in the ration of 5 for 1 so we will just multiply the shareholding by 5 t which only change the 4th column

No. Of shares Shareholders Shares
1-500 532 81.84% 273,225 0.69%
501-1000 50 7.7% 219,420 0.55%
1001-2000 12 1.85% 88,410 0.22%
2001-3000 7 1.08% 88,000 0.22%
3001-4000 4 0.61% 77,500 0.2%
4001-5000 1 0.15% 20,455 0.05%
5001-10,000 5 0.77% 1,83,600 0.46%
10,001-above 39 6% 3,88,11,670 97.61%
Total 650 3,97,62,280 100%

Now look at the shareholding pattern as of 30th June 2011

Category of Shareholders No. Of Entities Shares held Demat % holding
Promoters
Individual 38 3,62,65,510 3,62,65,510 45.6%
Corporate 3 2,33,20,880 2,33,20,880 29.33%
Total 41 5,95,86,390 5,95,86,390 74.93%
Public
Bodies Corp 16 1,83,78,900 1,83,43,900 23.11%
Individual Shareholders
Up to 1 lac 612 13,75,100 6,36,530 1.73%
Above 1 lac 1 1,84,170 0.23%
Total 629 1,99,38,170 1,89,80,430 25.07%
Grand Total 670 7,97,24,560 7,85,66,820  

If we consider the public shareholding,  we will notice that individuals hold only 1.96% whereas the bulk (23.11%) is concentrated in the hands of  16 corporates of which 5 corporates hold 1,79,26000  ( 22.54%) and 11 Corporate bodies hold only 4,52,900 shares.

Further of the 612 individuals holding 13,75,100 shares, 532 shareholders hold only 2,73,225 shares  ( if you multiply 532 by 500 you will get 2,66,000 but we will let it go ). Interestingly  of these  less than 50% were held in demat form as of 30th June 2011.

All this means that there were only 7.38 lac shares available for trade for public.

Of course the BC could trade and nothing can stop them from buying and selling and there is no bar, it is perfectly legal. But that would be a travesty of the whole idea of listing being for the purpose of wide holding of the stocks.

I am sure promoters would not trade their shares on the first day of listing itself

There are 613 individuals. My take is that these are or were people who were employees and/or relatives of employees who were made to subscribe to 500 shares each at the time of IPO and lsiting at Jaipur and Calcutta stock exchanges. Reason for less demat is clear. Most of these people are not traceable. They would have left the employ of the company or may simply not be the kind of people to hold demat accounts on their own. Usually physical shares can be held benami by holding the share certificate and the transfer deed with the signature of the original holder. This transfer deed can be revalidated by ROC for a fee of Rs 50 and lodged with the company. So if the company management is mine, there is no difficulty in transferring the shares. Problem comes in the demat part. For shares to be held in the demat account, holders need to have KYC and that gets a little tricky.

If I had the patience, I would ask the company for its register of members ( I can get it from ROC/MCA  ) if they have filed and do some research on the 16  Body Corporates who are holding 23.11% ( 18.378 million )( Average 1.14 million- do you smell the rat as yet? )  shares of the company by looking at their registered office addresses  and directors. Usually the registered office address of these companies would be related party address or residential addresses of friends and relatives.

The whole point of this note is we should not get taken in by stated fact that it is a widely held company. It is not. Which makes the share price  to be highly susceptible to manipulation.

Trading data from BSE from 9th September to 18th October reveals this. This is a T2T stock which means unless you have shares, you cannot sell and obviously on day 1 of trading only the old shareholders could trade. On day 1, 2,42,257 shares were traded. This implies that effectively  1/3rd of the shareholders sold their shares which is highly unlikely. Most likely ( and I do not have proof though if SEBI dug into it, it could establish this ) this was a managed operation and after first few days of high volume trading, it is back to 5K trade per day.

For FY 11, after the split, the EPS of the company is about Rs 4 and at current CMP of 150, it carries a PE of 37.5. Management has been shouting from rooftop that they will do a 25% growth in topline and bottom line. Even if, we were to believe it, it would it still mean an EPS of 5 for FY 12 and at current price, a PE of 30 leaving hardly any scope for appreciation in the short run.

Company is highly leveraged with Debt : Equity at more than 1 though it may have some concessional loans under TUFT( did I get this right?) wherein a company pays only 5% interest.  It is fairly clear from the pronouncements that company desperately wants to place its equity and at current Market Cap of about 1200 Cr, a 20% dilution will net it Rs 300 Cr. This alone may make for swings in stock prices so it will bear watching though T2T makes it strictly a cash upfront kind of stock.