Infibeam IPO: Calling Speculators!

(Last Updated on 4th April 2016)

If you have not heard about Infibeam’s IPO plans, then probably you are not interested in the e-Commerce industry. And that should indirectly suggest you that the rest of this article has nothing for you.

A while ago I saw a Twitter trend #WeSupportInfibeam and the sudden feeling was – Why would a company try to trend itself on twitter and that too on a Saunday afternoon. Do people really make their investment decisions based on Twitter trends? Highly unlikely. But lets give them a benefit of doubt. Afterall, who would not want to be in news just before an IPO. And especially when its India’s first IPO for an e-Commerce company.


And now, since you have continued reading this article, it become my duty to help you understand what is Infibeam’s business lines and what are a few of the things which you must keep in mind before you decide to accept or reject the idea of putting your money in this IPO.

Infibeam, is an e-Commerce company which has operates in three main areas – a) An Online Marketplace, b) Domain Registration Business (.000 domains), c)SaaS based e-Commerce store solutions.

The company has stayed away from limelight, unlike Flipkart SnapDeal and others, and hence saved itself from spending a lot of money. Also, it did save itself from a lot of hassles by not competing directly with these ‘front-page’ digital companies. And it does say a lot about the frugal approach of the founders and promoters of the company, who are incidentally from the same ‘Mehta’ family. But its also points out the fact that this company is meant to serve the interests of the family, rather than sharing their success and profits among others aspirants (including employees, investors, etc). And I believe someone should have done an analysis on the kind of the environment their board meetings have. And how their work-culture looks inside the workplace. Strangely, all this important important information has been completely missing from all the analysis.

 In past, it has attempted a few things after taking cues from Amazon (where the primary founder used to work), and offered an e-Reader, however it failed.  And I hear that they are aiming at a streaming music product after this IPO event. Fair enough, I would like to wait and see the fate of the product.

From my experience in the eCommerce sector, SaaS business, and having competed against their Build A Bazaar (BaB) services, one thing is clear – They do a below average work. And hence, they attract only a below average customers in each area of their business. Like,  ask yourself – Why don’t you own a .ooo domain ? No, seriously ask yourself. Or why don’t you start an ecommerce store using BaB ? Or, why don’t you shop from Infibeam’s store?

Anyway, I could be wrong in my judgement. So lets give them a fair chance. And now lets proceed to their bottom-line numbers.

Infibeam plans to raise Rs 450 Cr via this upcoming IPO which will get added to the existing Rs 70 Cr it already has on its books. And it would be interesting to note that in past 5 years, it has spent only Rs 88.5 Cr as Capital Expenditure.

One question arises here is that – It would be interesting to note the growth plans of a company which in past 5 years spent only spent 88.5 Cr is planning to spend almost 5 times in next five years!

The answer we get is slightly unsettling – It wants to invest in cloud data centre (which makes me feel is a copy of Amazon’s business plan), invest in building and buying software technology, get a new office, add 75 logistics centres (in addition to existing 12).

In all the above ‘use of funds’ proposal, one theme is common – all the items have a services angle to them. And it certainly means an attempt at scaling up their operations and also increase the man-power requirements.

Now, a bit of logic hunting in their fund raising. The online marketplace business which contributes around 70% of their bottomline revenue is a loss making entity (in past 6 months it suffered a loss of 1%) and its ecommerce services business which contributes more than 25% business is a profit making entity, contributing about 57% gross margins in past 6 months.

And hence they plan to expand more into the services business with the money they are hoping to raise. However, the challenge is balancing the money between the e-tailing business and the e-commerce services business, because one offers the revenue the other offers profits. And the real fear is that most of the money from services business will be taken away by the e-tailing business.

Final thoughts – At an annualized FY16 revenue of Rs 350 Cr and net profit of Rs 13 Cr (3.7% of Revenue), demanding a market capitalization of about Rs 2,300 Cr (6.6x of Revenue) appears a bit too high for a retail investors.

So why are they going to the retail investors, instead of pitching their proposal to Private Equity funds for whom this $65 million deal shouldn’t be a too big to sign (considering their frugality, strategy, and patience to stick to the market and play-on). Probably the reason lies with the mindset of the promoters – They don’t want to share the fruits of success with anyone else. Neither do they want to lose control of their company by inviting someone else to the board room who can question them. And hence the easier route for them appears to be retail investors.

And with that mindset, I can just say one thing to the retail investors – Stay away from such close-knit companies where the entire board room is composed of family members, their primary interest would be to serve the interests of the family.

So, who should invest?

If you are a speculator, who believes that the company would have done solid arrangements (just like the Twitter trend) to sustain the share prices in the market, should invest. And if you invest, be the first one to jump out.

However, if you are someone who believes that there is value at the end of 3 years or so, well forget this offering. This is a one month show which will be well managed by the company’s friends and family members. So pick up the pop-corn and start monitoring the their share prices.

Updates from Day 1 (21st March 2016): Out of 1.25 Crore shares, Infibeam received bids for only 26.44 Lakh shares. The portion set aside for Qualified Institutional Buyers (QIB) was subscribed only 22%, and non-institutional investors received 21% subscription.Retail investors category was subscribed only 17%.

Updates from Day 2 (22nd March 2016): The qualified institutional buyers’ portion was subscribed 0.47 times. The portion reserved for high networth individuals (HNIs) was filled 1.4 times, while the retail portion was subscribed 0.67 times.

Updates from Day 3 (23rd March 2016): The Infibeam IPO, which started slow on the its Day 1 was given a thumbs down by many analysts, made a comeback on the closing day today. As per NSE data (till 1700 hrs today), the issue received bids for1,38,30,894 shares against the total issue size of 1,25,00,000 shares. This means that the INR 450 Cr. issue was oversubscribed at 1.11 times, thus making Infibeam the first Indian ecommerce firm to launch a successful IPO.

Starting today (4th April 2016), Infibeam Incorporation goes live on the Indian Stock Exchanges – NSE & BSE. The listing price was Rs 432/-. And it has started its journey into the Indian markets by opening at Rs 453/- (on NSE) and Rs 458/- (on BSE).

I will keep a close watch on the movements, and will keep updating it on a weekly basis.

In the mean time you can have a look at the company’s details and price movements here.

Reference Articles:

Money Control’s Page on Infibeam.

Mint’s article : Infibeam’s Uncharacteristic boldness may unnerve IPO investors

ET’s article: Pricing of Infibeam IPO appears too ambitious; will be difficult to compete with existing giants

Next Big What’s article: Infibeam IPO subscribed only 21% on Day 1

Mint’s article: Infibeam’s Rs 450 Cr IPO subscribed 0.63 times on Day 2

Inc 42’s article: Infibeam makes a comeback on Day 3, IPO subscribed 1.11 times on closing