Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Archies -Strong Buy - Vs. Infrasoft IPO

|Includes: WisdomTree India Earnings ETF (EPI), INP
Archies Limited - also known as Archies Gifts and Greetings. ( one can it the Hallmark of India ?). An India listed micro-cap of $13 Mn.
  • Today -Archies - made high of 106. closed at 100 up +12% on strong Vols of 8 lac shares ( 40x its 2 week avg volumes). stock has ckt limit of +/-20%.
  • IPO to open on March 23rd.  ( its business mode is free e-greeting cards ,98% of revenues ( 25 crs) is thru internet Advt. -CPM basis or cost per thousand impressions)
  • Maintain 120 target in next one month.( of course key assumption is that 35 crs IPO gets subscribed)
  • Archies -5 days stock chart
archies - 5 day perf.jpg

  • Disclosure - Long Archies.
  • at any stock buys at these levels , one should be ready for 20% correction given the 100% rise in past 1 yr.
Got the info of the upcoming IPO from VC Circle. it is definitely positive for Archies. today archies up +14%at 101 on strong vols of 4 lac shares( up 20x 2 week avg. vols)
  •  planning to raise 35 crs at 100 per share ( 25% dilution) , so valuation of 150 cr. vs arches 68 cr @ 101 cmp
  • will have PE of 27 vs < 6 for Archies
  • PAT of at 5 cr vs 10 cr for archies ( though 123 net margins are > double of archies, fact is for this kind of busines , you also need off-line stores) has filed DRHP with SEBI in Oct/Nov`09 and it typically takes 5-6 months for SEBI to revert with approval so it can get approval anytime and that would be an immediate trigger for Archies. ( update : to open for IPO on 23-Mar-2010)
Archies -
  • cmp 89 . mkt cap just 60 crs. 
  • technical shorter term target- if stock closes well above 95 , 1st target is 120 ( 1 yr high) . stop loss 80-85.
  • longer term buy - can be even a buy n hold for a patient value investor. can touch 200 ( its lifetime high) over couple of years as it shows improving results
  • Technicals
  • key trigger - could hit IPO market anytime soon. awaiting SEBI approval. co. funded by Intelcapital - $ 5 mn. not sure of valuation of the co. and funds that it plans to raise. anyone got any news ?? see link
  • fundamentals
    • 9m results showing good top line growth of ~10% at 100 crs. but bottom line flat to -ve growth.9m PAT of 8 crs vs 10 crs. thats one reason for stock correction.greetings segment showing recent 33% decline but gifts showing decent 20% growth and also has online venture called archies online
    • stock at cheap FY10 PE of 6 vs. larger cap retail peers having 30 PEs. P/CFO also very reasonable at 10.
    • Mar`10 qtr results to be definitely better than last yr as in last Mar`09 it had loss of 3 crs.
    • stock stuck in business model transition mode ( who buys greeting cards nowadays ?)
    • but over longer term in attractive retail /domestic consumption sector. co. sales of just 140 crs. so lots of room to grow provided it plays it cards well.
    • now GIFTS contributes over 55% of total sales. "greeting cards " contribute just 30% now.
    • co. owns 120 stores all over india. ( mostly leased).that would be a key asset for a acquirer -for any retail business - food,cafes..etc.. at cmp. cost to acq. per store would be 50-60 lacs per store
    • promoter has shown clear intention earlier to sell out if given price 400 crs or 7x from cmp of 60 crs.or price of ~600
    • promoter stake steady at 62% since the past few yrs.
    • key shareholders - Times of india TOI( Benett and Colemann)) & Videocon are holding 8% since past couple of years. TOI bought 0.25 Mn shares at 160 per share or Rs. 40 Mn 2 year ago.
    • No pledged shares. has stopped dividend since 2006 ( 2 per share) due to capital requirements
    • debt of just 17 crs and its reducing Year on Year.
  • negatives - Main negative is promoter trying to hikes its 62% stake. so one can expect 15% dilution. In 2008 it had issued 0.1 cr shares to promoters( 15% equity dilution) ,through warrants.  at price of 160 ( Rs 16 crs) by paying 10% immediately and to pay the remaining by Dec`08 but promoters decided to skip the warrants as price at Dec`08 was at 50-60.
Disclosure - Long Archies.

Disclosure: Long Archies