Akshar Spintex BSE SME IPO review (May apply)

Akshar Spintex Ltd. (ASL) is engaged in the manufacturing of 100% cotton yarn that includes combed, semi combed and carded yarn. It has installed capacity of total 24480 spindles . Plant is located at Kalavad, District Rajkot, Gujarat. ASL's activities include manufacturing, marketing of raw cotton, cotton bales, cotton seeds, yard and by-products. Plant is located in vicinity of main raw material i.e. sankar cotton.

To part fiancé its working capital and general corpus fund needs, ASL is coming out with a maiden IPO of 6747000 equity shares of Rs.10 each at a fixed price of Rs. 40 per share to mobilize Rs. 27.00 crore. Issue comprises of fresh equity issue of 999000 shares aggregating to Rs. 4.00 crore and offer for sale of 5748000 shares aggregating to Rs. 23 crore. Issue opens for subscription on 27.04.18 and will close on 03.05.18. Minimum application is to be made for 3000 shares and in multiples thereon, thereafter. Issue constitutes 26.99% of post issue paid up capital of the company. Post allotment, shares will be listed on BSE SME. Issue is solely lead managed by Pantomath Capital Advisors Pvt. Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. It has issued entire equity since inception till now at par. Average cost of acquisition of shares by the promoters is Rs. 10 per share. Post issue its current paid up equity capital of Rs. 24 cr. will stand enhanced to Rs. 25 cr.

On performance front, ASL has posted turnover/net profits of Rs. 15.62 cr. / Rs. –(0.51) cr. (FY15), Rs. 59.84 cr. / Rs. 2.67 cr. (FY16), Rs. 90.39 cr. / Rs. 5.39 cr. (FY17). For first seven months ended on 31.10.17 of FY18 it has earned net profit of Rs. 2.79 cr. on a turnover of Rs. 55.60 cr. For last three fiscals it has posted an average EPS of Rs. 1.44 and an average RoNW of 11.50%. Issue is priced at a P/BV of 2.8 on the basis of its NAV of Rs. 14.30 as on 31.10.17 and at a P/BV of 2.61 on the basis of post issue NAV of Rs. 15.33. If we annualize latest earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 20 plus against industry average of 9. As per offer documents it is showing Vippy Spinpro and Sri Nachammai as its listed peer that are trading at a P/E of 8 and 10 (as on 20.04.18). Thus issue appears aggressively priced. However, it would be worthwhile to note that recent SME entrant Angel Fibers which is the nearest listed peer (with a capacity of 19584 spindles) and came with IPO at a price of Rs. 27 (at a P/E of around 13) is currently trading at Rs. 41 (at a P/E of around 31 – as on 20.04.18).

On merchant banker's front, this is 69th mandate from its stable in last four fiscals. Last 10 listings opened at a premium ranging from 1.6% to 20% on the offer price on the day of listing.