In the first-ever grading of an initial public offering, ICRA has assigned an IPO Grade 2 to the proposed offer of SRS Entertainment Ltd (SRS).

ICRA assigns IPO gradings on a scale of IPO Grade 5 through to IPO Grade 1, with Grade 5 indicating strong fundamentals and Grade 1 indicating weak fundamentals.

SRS has proposed an IPO of 2.28 crore shares (of which 42.87 lakh shares are reserved for promoters), at a likely price band of Rs 35- 42.

Symbolic representation

ICRA has said its grade is a symbolic representation of current assessment of the fundamentals of the issuer concerned. Such an assessment involves a comparison both with peers and with other listed equity securities.

An ICRA IPO Grade is, however, not a comment on the price of the security concerned and nor should it be construed as a recommendation to invest or not to invest in that security, it said. Further, an ICRA IPO Grade is not a certificate of statutory compliance or a view on the issuer's future stock price or credit rating.

Grading factors

ICRA's grading for the IPO of SRS takes into account the satisfactory operating performance of the entity's first project (mall and multiplex) in Faridabad, Haryana; the demonstrated financial support of the promoters for the business and also its current favourable financial structure with low dependence on external borrowings.

The grading is, however, constrained by the limited geographic diversity of revenues, the increasing level of competition anticipated in future in the entity's existing region of operations and the relatively short period of its proven performance.

ICRA's grading also factors in the aggressive expansion being undertaken by the entity, managing which would be a key challenge given the increasing competitive pressures in the sector and the limited ability of the promoters to extend further financial support to SRS.

The grading also reflects the limited management bandwidth in the company.

SRS was incorporated as SRS Commercial Company Ltd in August 2000 with its name changed to SRS Entertainment Ltd on January 25, 2005. The entity is engaged in the business of development and management of multiplexes, malls and value retail stores. SRS is promoted by the Jindal and Bansal families, based in Faridabad. The families have interests in real estate, non-banking finance and trading of commodities like rice, pulses and oil in the Haryana region.