A G Universal NSE SME IPO review (Avoid)

•    Till recent times, AGUL was in the business of trading activities for metal pipes.
•    Off late it has ventured into manufacturing activities of aluminium profiles.
•    Small equity base post IPO indicates longer gestation for migration.
•    There is no harm in skipping this greedily priced issue. 

PREFACE:
Share India Capital Services Pvt. Ltd. is up to making some new trends. This issue offer document has given details for two mandates of 2018-19 and thereafter, it has shown no mandates from 2019-20 to 2021-22. However, though it has brought two IPOs in 2022-23, details are missing from the offer document. In the last offer document of Exhicon Events, it referred to three IPOs before it and with Exhicon has brought 4 mandates. How exchange is clearing such incomplete documents is the biggest wonder. (Refer to page no. 214 of the prospectus).

On the other hand, while talking to the management, according to information provided by them about the aluminium project going on commercial production from March 2023 and their recent marketing activities for Vietnam-produced Ultramaxx Batteries in India were not covered in the offer documents. AGUL website has info about these activities. However, the lead manager has suppressed this info for the reasons best known to them. In short, transparency is missing in the offer document.

ABOUT COMPANY:
A G Universal Ltd. (AGUL) originally incorporated as the style of Akshata Polymers Pvt. Ltd. turned into a public limited entity in November 2022. At present AGUL deals in trading various products including stainless steel pipes, mild steel pipes, ERW Black pipes, GI pipes, Hollow Sections, uPVC pipes, cPVC pipes, TMT Bars, CR Coils, and HR Coils. The company acts as a dealer for Surya Roshni, Jindal Supreme, Swastik Pipe, Ravindra Tubes, SKS Ispat & Power, etc. To enter into manufacturing activities, it acquired an operative plant engaged in the manufacturing of aluminium ingots and completed the takeover process by February 2023. The plant was expected to go for commercial production on April 01, 2023. (according to management, this has already gone into production and they have some revenue from this initiative in the final quarter of FY23).

The company will manufacture aluminium ingot through imported scrap and then aluminium profile (doors and windows) through aluminium ingot. Raw materials for the manufacturing will be imported from Hong Kong, UAE, Saudi Arabia and the United Kingdom. The company will target the local market through the dealers' network and Indiamart in Delhi & NCR and the biggest market for the product is Paharganj, Delhi. The segment in which the company is operating is highly competitive and fragmented. As of November 30, 2022, it had 11 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 1454000 equity shares of Rs. 10 each at a fixed price of Rs. 60 per share to mobilize Rs. 8.72 cr. The issue opens for subscription on April 11, 2023, and will close on April 13, 2023. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.51% of the post-IPO paid-up capital of the company. AGUL is spending Rs. 0.57 cr. for this IPO process and from the net proceeds it will utilize Rs. 6.10 cr. for working capital, and Rs. 2.05 cr. for general corporate purposes. 

Share India Capital Services Pvt. Ltd. is the lead manager and Skyline Financial Services Pvt. Ltd. is the registrar of the issue. Share India Group's Share India Securities Ltd. is the market maker for the company. 

Having issued initial equity shares at par, the company issued further equity shares in the price range of Rs. 50 - Rs.100 per share between March 2009 and September 2022. It has also issued bonus shares in the ratio of 6 for 1 in March 2022 and in the ratio of 1 for 1 in October 2022. The average cost of acquisition of shares by the promoters is Rs. 3.31, and Rs. 5.04 per share. 

Post-IPO, AGUL's current paid-up equity capital of Rs. 4.03 cr. will stand enhanced to Rs. 5.48 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 32.90 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, AGUL has posted a turnover/net profit of Rs. 20.08 cr. / Rs. 0.05 cr. (FY20), Rs. 38.64 cr. / Rs. 0.15 cr. (FY21), and Rs. 70.74 cr. / Rs. 0.71 cr. (FY22). For 8M of FY23, it earned a net profit of Rs. 1.14 cr. on a turnover of Rs. 35.95 cr. Boost in the bottom line for 8M of FY23 appears to be window dressing to get the fancy valuation. 

For the last three fiscals, AGUL has reported an average EPS of Rs. 9.18 and an average RoNW of 16.72%. The issue is priced at a P/BV of 3.58 based on its NAV of Rs. 16.77 as of November 30, 2022, and at a P/BV of 4.87 based on its post-IPO NAV of Rs. 12.33 per share (?). 

If we annualize FY23 super earnings and attribute them to post-IPO fully paid-up equity capital, then the asking price is at a P/E of 19.17, whereas on the basis of FY22 earnings it is at a P/E of 46.15. Thus the issue appears greedily priced. 

DIVIDEND POLICY:
The company has not declared any dividends since incorporation. It has adopted a prudent dividend policy in November 2022, based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Rathi Bars, Vaswani Industries and Adishakti Loha as their listed peers. They are currently quoting at a P/E of 11.09, 7.59, and NA (as of April 06, 2023). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 5th mandate from Share India Capital in the last six fiscals (including the ongoing one). Out of the last 3 listings, 2 opened at par and the rest were listed at a premium of 1.82% on the listing date. Thus it has a poor track record.