3B Films BSE SME IPO review (May apply)

•    The company is engaged in the business of manufacturing and marketing of CPP and CPE films.
•    It is also engaged in the reprocessing of by-products and marketing.
•    The company also trades in adhesive laminated films, and gears for entering in the manufacturing of the same.
•    Based on its super financial data from FY24 onwards, the issue appears aggressively priced.
•    Well-informed investors may park moderate funds in this pricey bet.

ABOUT COMPANY:
3B Films Ltd. (TBFL) is established with a vision to revolutionize the CPP films industry through cutting-edge technology and unwavering dedication in providing superior quality Cast Polypropylene (CPP) and Cast Polyethylene (CPE) films. The products are tailored to meet the diverse needs of the flexible packaging industry and high-end thermoforming applications and thus play a pivotal role in delivering innovative packaging solutions to clients of a wide array of industries. Its product portfolio includes a wide range of CPP films designed to address the specific needs of various industries, including food and beverage, clothing, flowers and other consumer goods. 

From high-clarity films for premium packaging to high-barrier films for extended shelf life, it offers solutions that cater to the evolving demands of the market as the company presently is equipped with such a manufacturing facility capable of producing CPP & CPE films spanning a thickness range from 15 to 250 microns. Further, considering the future prospect of Adhesive Laminated Films in line of present business of the Company, in the financial year 2023-24, the company also started trading of said films and recorded turnover of Rs.22.59 Crore in the first financial year itself. To exploit the potential business opportunities prevailing in the market, the company is planning to install machines in its manufacturing unit itself to manufacture adhesive laminated films in the years to come.

As part of its commitment to operational efficiency, the company reprocesses the scrap generated during the manufacturing of CPP & CPE films. This scrap is reprocessed into granules, which are subsequently sold in the market. These granules serve as a valuable raw material in various industries, contributing to the circular economy by minimizing waste and maximizing resource recovery. This initiative enhances the profitability of its operations by capitalizing on by-products of its core manufacturing processes. As of December 31, 2024, it had 59 employees on its payroll. It also hires contract workers as and when required.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden combo IPO of 6750000 equity shares of Rs. 10 each at a fixed price of Rs. 50 per share to mobilize Rs. 33.75 cr. The issue opens for subscription on May 30, 2025, and will close on June 03, 2025. The issue consists of 3552000 fresh equity shares worth Rs. 17.76 cr. and an offer for sale (OFS) of 3198000 equity shares worth Rs.15.99The minimum number of shares to be applied is for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 27.25% of the post-IPO paid-up capital of the company. The company is spending Rs. 1.74 cr. for fresh equity shares issue, and from the net proceeds, the company will utilize Rs. 4.43 cr. for capex, Rs. 7.15 cr. for working capital, and Rs. 4.44 cr. for general corporate purposes. 

The IPO is solely lead managed by Nirbhay Capital Services Pvt. Ltd., and Maashitla Securities Pvt. Ltd., is the registrar to the issue. Giriraj Stock Broking Pvt. Ltd., is the Market Maker. The issue is underwritten to the tune of 15.02% by Nirbhay Capital and 84.98% by Giriraj Stock Broking.

Having issued/converted initial equity shares at par value, the company issued further equity shares at a fixed price of Rs. 82 per share in March 2020. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NIL, Rs. 12.87, Rs. 15.51, and Rs. 16.73 per share. 

Post-IPO, its current paid-up equity capital of Rs. 21.22 cr. will stand enhanced to Rs. 24.77 cr. Based on the upper cap of IPO price, the company is looking for a market cap of Rs. 123.86 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit/ - (loss) of Rs. 68.07 cr. / Rs. – (0.35) cr. (FY22), Rs. 72.82 cr. / Rs. 0.92 cr. (FY23), and Rs. 76.40 cr. / Rs. 4.29 cr. (FY24). For 9M of FY25 ended on December 31, 2024, it earned a net profit of Rs. 4.20 cr. on a total income of Rs. 57.18 cr. Quantum jump in its bottom lines from FY24 onwards raise eyebrows and concern over its sustainability going forward.

For the last three fiscals, the company has reported an average EPS of Rs. 1.13 and an average RoNW of 7.87%. The issue is priced at a P/BV of 3.02 based on its NAV of Rs. 16.55 as of December 31, 2024, and at a P/BV of 2.34 based on its post-IPO NAV of Rs. 21.35 per share.

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 22.12. Based on FY24 earnings, the P/E stands at 28.90. The issue relatively appears aggressively priced.

For the reported periods, the company has posted PAT margins of – (0.51) % (FY22), 1.28% (FY23), 5.67%, (FY24), 7.40% (9M-FY25), and RoCE margins of 3.82%, 5.30%, 8.64%, 6.91% respectively for the referred periods. Its debt equity ratio of 2.89 as of December 31, 2024, raises alarm.

According to the management, fromFY24, their entry in trading activities in specialized film brought higher margins resulting in bumper profits. These trends will continue as they are focusing major trading activities going forward and also mulls starting manufacturing of the said products under its expansion plans.

DIVIDEND POLICY:
The company has not paid any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy post listing, based on its financial performance and future prospects. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has no listed peers to compare with.

MERCHANT BANKER’S TRACK RECORD:
This is the 2nd mandate from Nirbhay Capital in the last three fiscals, including the ongoing one.  From the only listings so far, it listed at discount. Thus, the merchant banker has a poor track record.