Adeshwar Meditex BSE SME IPO review (May apply)

•    AML is engaged in the manufacturing and marketing of surgical dressing and related products.
•    Its top line has shown almost static level for recent years.
•    Company's bottom line marked declining trends.
•    The issue is aggressively priced based on financial parameters.

ABOUT COMPANY:
Adeshwar Meditex Ltd. (AML) is engaged in the manufacturing of surgical dressings and external preparations products of Wound care & Wound management including sterile surgical wound dressing, tulle dressing, medical disposable, adhesive bandages, absorbent gauze, plaster, disinfectants, medical kits etc.

The Company is an ISO 13485:2016 certified Company. Its manufacturing facility situated at Deewan Industrial Estate, Palghar District., and it follows a state-of-the-art manufacturing process as prescribed by WHO-GMP, CE, ISO guidelines. The company's units are backed by advanced production facility and are fitted with the latest machinery and well organized and arranged sterilization facilities.

AML's manufacturing facility also has sophisticated facilities for quality testing, research & development, storage and packaging. It has an in-house R&D facility for on-site process improvement and for bettering present products offered as well as products under innovation and testing laboratory which ensures that its products are certified and any major defects in the products are identified on a real-time basis and rectified before the final dispatch. The company has registered 18 trademarks in India and caters for domestic as well as overseas markets (with around 11% export sale).

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans for part repayment of loans (Rs. 2.00 cr.), working capital (Rs. 5.27 cr. and general corpus fund (Rs. 2.06 cr.) needs, AML is coming out with a maiden IPO of 3900000 equity share of Rs. 10 each at a fixed price of Rs. 25 per share to mobilize Rs. 9.75 cr. The issue opens for subscription on June 15, 2021, and will close on June 18, 2021. Minimum application is to be made for 6000 shares and in multiples thereon, thereafter. The issue constitutes 27.02% of the post issue paid-up equity capital of the company. Post allotment, shares will be listed on BSE SME. AML is spending Rs.0.42 cr. for this IPO process.

The issue is solely lead managed by Aryaman Financial Services Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Aryaman Capital Markets Ltd. is the market maker for this IPO.

Having issued initial equity at par, the company raised further equity in the price range of Rs. 13 to Rs. 55 between March 2012 and January 2020. It has also issued bonus shares in the ratio of 4 for 1 in March 2012, 3 for 2 in January 2013, 3 for 8 in March 2014, 1 for 6 in December 2016 and 1 for 1 in January 2021. The average cost of acquisition of shares by the promoters is Rs. 0.71 per share.

Post issue, company's current paid-up equity capital of Rs. 10.53 cr. will stand enhanced to Rs. 14.43 cr. Based on the issue price, AML is looking for a market cap of Rs. 36.08 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, AML has posted turnover/net profit of Rs. 58.70 cr. / Rs. 2.56 cr. (FY18), Rs. 54.75 cr. / Rs. 2.25 cr. (FY19), Rs. 56.39 cr. / Rs. 2.01 cr. (FY20). For the first nine months ended on December 31, 2020, it has earned a net profit of Rs. 1.39 cr. on a turnover of Rs. 52.09 cr. Thus while its top-line inconstancy with static average, its bottom line has shown declining trends.

For the last three fiscals, the company has posted an average EPS of Rs. 2.25 and an average RoNW of 13.25%. The issue is priced at a P/BV of 1.30 based on its NAV of Rs. 19.18 as of December 31, 2020, and at a P/BV of 1.20 based on its post-issue NAV of Rs. 20.76.

If we annualize FY21 earnings and attribute it to fully diluted post issue equity, then the asking price is at a P/E of 19.53.

COMPARISON WITH LISTED PEERS:
As per offer documents, AML has shown KMS Medi, Mohini Health as its listed peers. They are currently trading at a P/E of 100 and 7.95 (as of June 11, 2021). However, they are not truly comparable on an apple to apple basis.

MERCHANT BANKER'S PERFORMANCE:
This is the 26th mandate from Aryaman Financial in the last four fiscals (including the ongoing one). Out of the last 10 listings, 2 opened at discount and the rest with premiums ranging from 0.04% to 2.16% on the day of listing.