Add Shop Promotions BSE SME IPO review (Avoid)

•    Company is having third party operations.
•    FY18 performance is raising eyebrows.
•    Merchant banker has average track record.
•    Issue is priced very aggressively.
•    It’s a high risk/no yield bet.

About Company:
Add Shop Promotions Ltd. (ASPL) is currently engaged in the business of marketing and distribution of products in the categories of ayurvedic products, food supplements products, agricultural products, animal feed supplement products and personal care products under the brand name 'Add Shop Promotion'. It is supplying its products to retailers and wholesalers which are manufactured by select manufacturers under its brand. For selling products ASPL has entered into agreements with few select C&F’s in Karnataka, Maharashtra and Telangana.  Thus ASPL operates on third party model.

Capital History/Issue details:
To part finance its plan to set up herbal and ayurvedic processing units for manufacturing of cosmetic and non-cosmetic products, brand building and advertising, working capital and general corpus fund needs, ASPL is coming out with a maiden IPO of 2396000 equity shares of Rs. 10 each at a fixed price of Rs. 26 per share to mobilize Rs. 6.23 crore. Issue opens for subscription on 21.08.18 and will close on 30.08.18. Minimum application is to be made for 4000 shares and in multiples thereon, thereafter. Post allotment shares will be listed on BSE SME. Issue is solely lead managed by Fedex Securities Ltd. and Cameo Corporate Services Ltd. is the registrar to the issue. Issue constitutes 37.01% of the post issue paid up capital of the company. From FY14 to FY17 its paid up capital was Rs. 0.01 cr. that rose to Rs. 0.14 cr. as on 31.03.18 and is currently Rs. 4.08 cr. (as on 30.06.18). Average cost of acquisition of shares by the promoters is Rs. 10.17 per share. Having issued initial equity at par, it raised further equity in the price range of Rs. 25 and Rs. 29 between April 2018 and May 2018. It has also issued bonus shares in the ratio of 13 for 1 in March 2018, 1 for 4 in May 2018 and 1.25 for 1 in June 2018. Thus it raised its most of equity between March 18 and June 18. Post issue its current paid up equity capital of Rs. 4.08 cr. will stand enhanced to Rs. 6.47 cr.

Financial performance:
On performance front, for last three fiscals ASPL has posted turnover/net profits of Rs. 1.93 cr. / Rs. – (0.04) cr. (FY16), Rs. 4.55 cr. / Rs. 0.15 cr. (FY17) and Rs. 12.55 cr. / Rs. 0.23 cr. (FY18). For first quarter of FY19 it has earned net profit of Rs. 0.16 cr. on a turnover of Rs. 3.84 cr. While FY18 top line grew nearly 300% of FY17, bottom line grew by just 50% for the corresponding periods. As per offer documents, for last three fiscals it has posted an average EPS of Rs. 1.21 and an average RoNW of 31.51%. Issue is priced at a P/BV of 2.36 on the basis of its NAV of Rs. 11.01 as on 30.06.18 and at a P/BV of 1.58 on the basis of post issue NAV of Rs. 16.44. If we annualize FY19 Q1 earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 26 plus thus it is aggressively priced. It has no listed peers to compare with.

Merchant banker’s track record:
On merchant banker’s front, this is 4th issue from its stable in last three years. Out of previous three listings, 1 opened at par and the rest with a premium ranging from 2% to 11.1% on the day of listing. Thus, it has average track records.