Ambey Laboratories NSE SME IPO Review (Avoid)

•    The company is engaged in the business of agrochemical products manufacturing and marketing.
•    It has posted inconsistency in its bottom lines for the reported periods. 
•    There is some garble in the offer documents.
•    Based on FY24 annualized super earnings, the issue appears aggressively priced. 
•    There is no harm in skipping this "High Risk/Low Return" bet. 

ABOUT COMPANY:
Ambey Laboratories Ltd. (ALL) is engaged in the business of manufacturing of agrochemical products for protection of crops and it's been almost four decades the company serving the agrochemical sector. The company manufactures and supplies '2,4-D base chemicals' with an emphasis on quality and strict compliance with Environmental, Health, and Safety (EHS) regulations, within the chemical industry. The company has Programmable Logic Controller (PLC) and Supervisory Control along with Quality Assurance Department which ensures testing through HPLC, GC, UV etc. at every stage of production at its manufacturing facility installed, integrated and operating at 5 Acres Facility in the region of Behror, Rajasthan, India for manufacturing of "2, 4-D base chemicals".

ALL's manufacturing Facility located in Behror, Rajasthan, has been certified with ISO 9001:2015 from
Quality Research Organization and ISO 14001:2015 from United Accreditation Foundation, a member of International Accreditation forum to maintain highest quality, environmental and safety practices. The company has obtained certificate of compliance from RoHS Directive (2015/863/EC) European Parliament and commission decision (2005/618/EC) on the restriction of use of certain Hazardous Substance [Lead (Pb), Mercury (Hg), Cadmium (Cd), Hexavalent Chromium (Cr6+), Polybrominated Biphenyls (PBBs) and Polybrominated Diphenyl, Bis (2-Ethylhexyl) phthalate (DEHP), Benzyl butyl phthalate (BBP), Dibutyl phthalate (DBP), Diisobutyl phthalate (DIBP)] ethers (PBDEs) in Electrical and Electrical Equipments.

Due to backward integration of products, its plant is ZLD (Zero Liquid Discharge) to ensure minimum emissions and waste generation. It explores downstream products from core intermediaries to meet and exceed customer expectations and operation ensures organized inflow state of the art manufacturing and supply sustainability to valued customers. Presently the company manufactures 2,4-D Acid 98% TC, 2,4-D Sodium 95% SP 2,4-D Amine 866 | 720 | 480g/l SL 2,4-D Ethyl Hexyl Ester 96% TC 2,4-D Ethyl Ester 96% TC Chlorpyriphos 97%TC / 20%EC / 50%EC Thiamethoxam 96%TC / 25%WG / 75%SG Pretilachlor 95%TC / 50%EC / 37%EW Metribuzin 97%TC / 70%WS Hexaconazole 92%TC / 5%SC / 5%EC / 10%EC and Metalaxyl 98%TC / 35%WS for its customer base which comprises of large corporates like Aromatic Rasayan Private Limited, JR Jindal Infra-projects Private Limited; SC Formulator Co. Ltd.

The Company works within an interconnected network alongside Aromatic Rasayan Private Limited and OFB Tech Private Limited. All the transactions are performed on arms- length basis and the company enters into transactions both in the capacity of suppliers and customers, it procures raw materials from these partners and deliver finalized products for their sale. This dynamic relationship streamlines the supply chain, promotes mutual support, and enhances the efficiency of operations for all involved parties. Further, the Company operates under a barter system with Aromatic Rasayan Private Limited where they exchange raw materials and finished goods. Whereas, with OFB Tech Private Limited it operates on the basis of purchase/ sale orders. As of January 31, 2023, it had195 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden combo book building route IPO of 6570000 equity shares of Rs. 10 each to mobilize Rs. 44.68 cr. at the upper cap. The IPO constitutes 6258000 fresh equity shares (worth Rs. 42.56 cr. at the upper cap) and 312000 shares by way of Offer for Sale (OFS) (worth Rs. 2.12 cr. at the upper cap). It has announced a price band of Rs. 65 - Rs. 68 per share. The issue opens for subscription on July 04, 2024, and will close on July 08, 2024. 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 26.34% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 30.93 cr. for working capital, and the rest for general corporate purposes. 

The issue is solely lead managed by Fast Track Finsec Pvt. Ltd., and Link Intime India Pvt. Ltd. is the registrar to the issue. Nikunj Stock Brokers Ltd. is the market maker for the company. 

Having issued initial equity shares at par value, the company issued further equity shares at a price of Rs. 49.50 (on the basis of Rs. 10 FV) in October 2023. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 0.21, and Rs. 7.17 per share. With internal transfer/conversion value of shares resulted in below par acquisition cost.

Post-IPO, company's current paid-up equity capital of Rs. 18.69 cr. will stand enhanced to Rs. 24.95 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 169.64 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit/ - (loss) of Rs. 82.42 cr. / Rs. 10.34 cr. (FY21), Rs. 85.11 cr. / Rs. 3.58 cr. (FY22), Rs. 107.43 cr. / Rs. 4.57 cr. (FY23). For 10M of FY24 ended on January 31, 2024, it earned a net profit of Rs. 6.08 cr. on a total income of Rs. 100.44 cr. The company posted inconsistency in its bottom lines for the reported periods. 

For the last three fiscals, it has reported an average EPS of Rs. 7.17, and an average RoNW of 18.5%. The issue is priced at a P/BV of 3.58 based on its NAV of Rs. 18.98 as of January 31, 2024, but IPO price band ad is missing its post-IPO NAV data. There are some wrong data on its financial performance on page no. 111 and 112 of the offer document. 

If we attribute annualized FY24 super earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 23.29. The issue appears aggressively priced discounting all near term positives. 

For the reported periods, the company has posted PAT margins of 12.65% (FY21), 4.23% (FY22), 4.36% (FY23), 6.01% (10M-FY24), and RoCE margins of 58.51%, 12.53%, 12.75%, 13.14% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Atul Ltd., and Meghmani Organics as their listed peers. They are trading at a P/E of 57.8 and 9.58 (as of June 27, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 8th mandate from Fast Track in the last four fiscals (including the ongoing one), out of the last 6 listings, all listed with premiums ranging from 0.14% to 201.21% on the date of listing.