AA Plus BSE SME IPO review (Avoid)

•    AAPTL is primarily engaged in the trading of metal and other alloy products.
•    It has a total employee strength of 9 including management as of May 31, 2021.
•    It has posted listless financial performance so far and has no formal dividend policy.
•    The issue is exorbitantly priced.
•    Leas Manager has an average track record.  

ABOUT COMPANY:
AA Plus Tradelink Ltd. (AAPTL) is currently engaged in the business of trading products made from iron & steel, aluminium, graphite and other alloy products. It is also supplying epoxy floor coatings, industrial epoxy floor coatings, epoxy floor coating marine, PU floor coating etc. It is providing its services to corporate and other clients from the construction and manufacturing industry.

As of May 31, 2021, it has a total employee strength of 9 including management. It is operating in a highly competitive field that is fragmented. It operates from the leased office which has an agreement till January 14, 2022. Thus the company has no own property or assets.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 4.77 cr.) and general corpus funds (Rs. 1.41 cr.) AAPTL is coming out with a maiden IPO of 3600000 equity shares of Rs. 10 each at a fixed price of Rs. 18 per share to mobilize Rs. 6.48 cr. Minimum application is to be made for 8000 shares and in multiples thereon, thereafter. The issue opens for subscription on July 08, 2021, and will close on July 13, 2021. Post allotment, shares will be listed on BSE SME. AAPTL will be spending Rs. 0.30 cr. for this IPO process. Issue constitutes 44.09% of the post issue paid-up capital of the company.

The issue is solely lead managed by Inventure Merchant Banker Services Pvt. Ltd. and Purva Sharegistry (India) Pvt. Ltd. is the registrar to the issue. Sernet Financial Services Pvt. Ltd. is the market maker for this issue.

Having issued initial equity at par, the company raised further equity at Rs. 25.00 per share between August 2016 and March 2019. It has also issued bonus shares in the ratio of 1 for 1 in March 2020. The average cost of acquisition of shares by the promoters is Rs. 12.50 and Rs. 14.67 per share.

Post issue AAPTL's current paid-up equity capital of Rs. 4.56 cr. will stand enhanced to Rs. 8.16 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 14.70 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, AAPTL has posted a turnover/net profit of Rs. 5.20 cr. / Rs. 0.10 cr. (FY19), Rs. 17.32 cr. / Rs. 0.14 cr. (FY20) and Rs. 9.51 cr. / Rs. 0.13 cr. (FY21). As per draft prospectus data, for FY18 it earned a net profit of Rs. 0.06 cr. on a turnover of Rs. 22.04 cr. Thus there is no consistency in the top and bottom lines.

For the last three fiscals, it has reported an average EPS of Rs. 0.33 and an average RoNW of 2.19%. The issue is priced at a P/BV of 1.36 based on its NAV of Rs. 13.28 as of March 31, 2021, and at a P/BV of 1.17 based on post issue NAV of Rs. 15.36. If we attribute FY21 earnings on fully diluted post issue equity capital, then the asking price is at a P/E of 112.50 thus the issue is priced exorbitantly.

COMPARISON WITH LISTED PEERS:
As per offer documents, AAPTL has shown Century Extrusions, Sacheta Metals and Sharda Ispat as its listed peers. They are currently trading at a P/E of 35.41, 17.1 and 11.25 (as of July 02, 2021). However, they are not truly comparable on an apple to apple basis.

DIVIDEND POLICY:
As per offer documents, AAPTL has no formal dividend policy. However, it will follow a prudent dividend policy post listing on the basis of its financial performance and business prospects.

MERCHANT BANKER'S TRACK RECORD:
On the merchant banker's front, this is the fourth mandate from its stable. Out of the last three listings, one opened at discount and the remaining two with a premium of 1.89% and 2.70%. Thus it has an average track record.