Investors showing better response to Oriana Power

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Two IPOs in SME space are currently open. They are Oriana Power and Vinsys IT Services. Although both are getting good response from investors but Oriana Power is getting better response, it got subscribed more than 24 times and its GMP is Rs 105 on issue price of Rs 118 per share. While Vinsys IT Services has been subscribed 7.32 times and its GMP is Rs 60 on issue price of Rs 128.

So let’s take a look at fundamentals of these companies to find the reason for the difference in response from subscribers. We have looked at company’s advantages and risks that are given in their respective RHPs.

Oriana Power

The company is in the business of solar power projects and it works under EPC and RESCO model. In EPC model the customer does the capital expenditure and then Oriana Power engineers, procures, constructs and operates the solar projects for clients. In RESCO model company builds the solar power plant on the rooftop or land of customer, provide electricity through that plant and charge tariff for it. Company does this through its 18 subsidiaries.

Competitive Advantages

1) Their promoters have long experience in fields such as steel, automation, manufacturing. 2) They focus on training and skill development of their employees 3) Company is also looking to maintain strong relationships with clients and suppliers

Risks

1) For several raw materials they are dependent on single or limited 3rd party suppliers due to which there can be concentration risk. 2) Like if they are unable to properly estimate fixed cost in EPC contract, their projects might get delayed which can impact construction costs and working capital requirements 3) They are in competitive industry and they may find difficulty in winning bids and contracts for solar power projects 4) Their business depend on solar weather conditions and unfavourable weather conditions can impact their business

So only risk regarding suppier can be a threat while rest of them point towards general uncertainty in running the business.

Vinsys IT Services

Its business comprises Training&Certification, Digital Learning, IT Development Services, Foreign Language Services.

Competitive Advantage

1) Promoters have long experience in the industry 2) They have diversified portfolio and they provide courses in high demand such as AI, Cloud computing, cyber security, ERP. 3) They have global presence as close to 50% revenue comes from abroad in the form of exports and revenues from their foreign subsidiaries.

Risks

1) High concentration of customers as top 10 customers contribute 34.05%. 2) Since it is an IT company, its business process are dependent on IT functions and any issues in them can create problems 3) There is huge working capital requirement which company fulfils with short term borrowing and internal accruals. However in recent year use of internal accruals for fulfiling working capital needs has increased from 36% to close to 80% this shows company has improved internal funds. At the same time close to 50% proceeds from IPO will be used for working capital requirement. 4) Industry has various regulations so change in them or unable to renew them can impact the business 5) They face competition from both organized as well as unorganized players. Company stated that organized players have more experience and resources while unorganized players offer more competitive prices.

So it can be seen that risks for Vinsys IT Services are more substantial than risks for Orian Power.