Angel Fibers BSE SME IPO Review (May apply)

Angel Fibers Ltd. (AFL) is primarily in the business of spinning of cotton yarn. It is also trading in a by-product i.e. cotton waste.  Company has installed 19,584 spindles which can manufacture 4363 Metric Tonne cotton yarn per annum viz.,30s Ne Combed and 40s Ne Compact variety used to make products like bed sheets, socks, knitted fabrics, etc. and 40s Ne Compact Combed yarn used to make Shirting, Sheeting, Bottom Weights, etc. AFL sells its products in domestic / international markets.

To avail listing benefits, AFL is coming out with a maiden IPO of 6748000 equity shares of Rs. 10 each at a fixed price of Rs. 27 per share to mobilize Rs. 18.22 crore. Issue opens for subscription on 20.02.18 and will close on 23.02.18. 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 Guiness Corporate Advisors Pvt. Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Issue constitutes 26.99% of the post issue paid up capital of the company. Entire issue is by way of offer for sell and hence no fund is available for the company. Having issued initial equity shares at par, it raised further equity at a price of Rs. 100 per share. Being OFS, its post issue paid up equity capital remains same i.e. at Rs. 25 crore. Average cost of acquisition of shares by the promoters is Rs. 10 per share.

On performance front, AFL has posted turnover/net profits of Rs. 51.02 cr. / Rs. –( 5.65) cr. (FY16), Rs. 88.74 cr. / Rs. 3.11 cr. (FY17). For the first half of the current fiscal, it has earned net profit of Rs. 2.59 cr. on a turnover of Rs. 46.08 cr. For last three fiscals it has posted an average EPS of Rs. – (0.14) and an average RoNW of –(2.81)%. Thus it has negative earnings and as such, its P/E working will transpire in negative. Asking price is at a P/BV of about 2.7. If we annualize latest earnings and attribute it on post issue equity then issue is priced at a P/E of around 13 plus.  As per offer documents, its listed peers are trading at a P/E of 15 (Ginni Filament) and 45 (Nagreeka Exports). Thus pricing appears reasonable. However, sudden jump in top and bottom lines are bit surprising.

On merchant banker’s front, this is the 25th mandate from its stable in last three years. Out of last 10 listings, 2 opened at discount, 2 at par and the rest with a premium of 5% to 20% on the day of listings.