Orient Technologies IPO: 10 key risks you should know about before investing in ₹214 crore issue

Orient Technologies IPO, which opened for subscription on Wednesday, saw strong investor interest and was fully subscribed within hours of the bidding opening. On its first day, the IPO received bids for 50,982,984 shares against the available 7,297,670 shares, resulting in a subscription rate of seven times.

Retail investors showed particularly high interest, with their portion subscribed 10 times on the first day, while the non-institutional investors (NII) subscribed to their portion 6.44 times. The IPO will close on Friday, August 23.

The company is looking to raise ₹214 crore through this offering, which includes a fresh issue of 0.58 crore shares amounting to ₹120 crore and an offer for sale of 0.46 crore shares totalling ₹94.76 crore.

The offer sets the price band at ₹195–206 per equity share, with a face value of ₹10 each. Of the total offer size, 50% is reserved for qualified institutional buyers, 15% for non-institutional investors, and 35% for retail investors.

Meanwhile, the company highlighted the following key risks in its Draft Red Herring Prospectus.

Key risks

Dependence on key customers: Orient Technologies relies heavily on the contribution of its top 10 customers each year. This significant dependence closely ties the company's business and financial condition in any given financial year to these customers. Any loss or reduction in orders from these key customers could adversely affect the company's revenue and profitability.

Reliance on limited vendors and suppliers: Orient Technologies relies heavily on a few vendors or suppliers, with whom the company typically does not enter into long-term contracts. The loss of these vendors or any significant increase in the prices of their products or services could materially impact the company's operations and revenue.

Challenges in implementing business strategies: The future success of Orient Technologies depends on its ability to effectively implement its business and growth strategies. The company is also in the process of adopting a new line of business. Failure to successfully implement these strategies or operate effectively in the new business line could negatively impact the company's operations.

Employee-related risks: Orient Technologies has a large workforce, and employee benefit expenses constitute a significant portion of the company’s fixed operating costs. Any increase in these expenses could reduce profitability. Additionally, any IT system failure or lapses on the part of employees could lead to operational interruptions, inefficiencies, or reputational harm.

Risks associated with government contracts: A significant portion of Orient Technologies' orders come from government-related entities that award contracts through a tender process, typically selecting the lowest bidder. The company’s performance could be adversely affected if it is unable to successfully bid for these contracts or is required to lower its bid value, thereby impacting profitability.

Uncertainty of the order book: Orient Technologies' current order book value, as of December 31, 2023, stands at ₹927.56 million. However, this figure is not necessarily indicative of future growth. Customers could cancel, delay, put on hold, or fail to pay for some orders within the current order book, potentially affecting the company's financial condition.

Related party transactions: The company has engaged in related party transactions in the past and may continue to do so in the future. There is no assurance that these transactions were conducted on the most favourable terms or that they will not adversely affect the company's financial condition and operational results.

Negative cash flow concerns: Orient Technologies has previously experienced negative net cash flow from operating, investing, and financing activities. Continued negative cash flow in these areas could have an adverse impact on the company’s growth prospects and its ability to fund future operations and investments.

Outstanding legal proceedings: The Company and its promoters are currently engaged in multiple legal disputes. An unfavourable resolution of these proceedings could significantly affect the Company’s business, cash flows, financial condition, and operational results.

No proceeds from the offer for sale: Orient Technologies will not receive any proceeds from the offer for sale. Instead, the net proceeds will go to the selling shareholders. As a result, the Company will not benefit financially from the offer for sale, which could limit its ability to fund future growth or operational needs.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.