Arunaya Org NSE SME IPO review (May apply)

•    The company is engaged in the manufacturing and trading of variety of dyes and its intermediaries.
•    It marked inconsistency in its top lines for the reported periods.
•    The sudden jump in bottom lines from FY24 onwards raises eyebrows and concern over its sustainability going forward.
•    It is operating in a highly competitive and fragmented segment.
•    Well-informed investors may park moderate funds for long term.

ABOUT COMPANY:
Arunaya Organics Ltd. (AOL) started its operation in dye industry in the year 2010. It is engaged in trading and manufacturing activities of different types of dyes and its intermediaries. A significant portion of revenue is generated from outsourcing key function i.e., manufacturing of finished product from its group company Chinmay Chemicals Private Limited. It supplies a comprehensive range of products, including reactive, acid, direct, basic, and solvent dyes, as well as dye intermediates. AOL’s products are available in multiple forms, such as standardized spray-dried and tray-dried powders, granules, crude, reverse osmosis-treated products and salt free. Additionally, it provides specialty performance chemicals tailored for the paper industry and textile dyeing. 

Its diverse product portfolio is designed to cater to both domestic and international markets. AOL’s production facility, located at C-8, GIDC Estate, Naroda, Ahmedabad- 382330, Gujarat, India, has an annual capacity of approximately 30 metric ton per annum. The company is committed to maintaining high standards of quality and environmental management, as evidenced by ISO 9001:2015 and ISO 14001:2015 certifications. It is equipped with the essential infrastructure for raw material storage, product manufacturing, and finished goods storage, all supported by quality control measures. 

Strategically located in Naroda, its facility leverages proximity to Mundra Port and ICD Ahmedabad, enabling logistics for product distribution, raw material procurement, and seamless access to customers. The manufacturing segment of the company focuses on producing a range of dye products, including Acid, Basic, Intermediate, Reactive, Solvent and Direct Dyes, primarily for the textile and paper industries. The manufacturing processes comprises of several key stages, including Material Procurement, Material Inspection, Inputting, Synthesis, Process Inspection, Drying, Blending, Final Inspection, Packaging, Storage, and Delivery. As of February 28, 2025, it had 30 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route combo IPO of 5860000 equity shares of Rs. 10 each to mobilize Rs. 33.99 cr. The company has announced a price band of Rs. 55 – Rs. 58 per share. The issue consists fresh equity issue of 5260000 equity shares (worth Rs. 30.51 cr. at the upper cap), and an Offer for Sale (OFS) of 600000 equity shares (worth Rs. 3.48 cr. at the upper cap). Thus, the overall size of the issue is xxx equity shares worth Rs. xx cr. at the upper cap. The issue opens for subscription on April 29, 2025, and will close on May 02, 2025. The minimum number of shares to be applied is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 33.41% of the post-IPO paid-up capital of the company. From the net proceeds of the fresh equity share issue, the company will utilize Rs. 11.79 cr. for capex on new manufacturing facility at Dahej, Rs. 9.00 cr. for working capital, and the rest for general corporate purposes. 

The company has allocated not more than 20% for QIBs, not less than 40% for HNIs and not less than 40% for Retail investors.

The IPO is solely lead managed by Unistone Capital Pvt. Ltd., and Bigshare Services Pvt. Ltd. is the registrar to the issue. R K Stockholding Pvt. Ltd., is the Market Maker for the company. RK Stockholding is also a syndicate member. The issue is underwritten to the tune of 85% by MNM Stock Broking Pvt. Ltd. and 15% by Unistone Capital Pvt. Ltd.

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 25 – Rs. 85.50 per shares between March 2013 and March 2023. It has also issued bonus equity shares in the ratio of 1 for 1 in March 2022 and 1114 for 100 in April 2024. The average cost of acquisition of shares by the promoter/selling stakeholders is Rs. 2.76, and Rs. 3.12 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 12.28 cr. will stand enhanced to Rs. 17.54 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 101.72 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total revenue/net profit of Rs. 62.26 cr. / Rs. 1.33 cr. (FY23), and Rs. 76.37 cr. / Rs. 1.73 cr. (FY24), and Rs. 62.79 cr. / Rs. 4.06 cr. (FY25). For 9M of FY25 ended on December 31, 2024, it earned a net profit of Rs. 3.60 cr. on a total revenue of Rs. 58.21 cr. The sudden spurt in its bottom lines from FY24 onwards raises concern, as it is operating in a highly competitive and fragmented segment.

For the last three fiscals, the company has reported an average EPS of Rs. 2.79 and an average RoNW of 30.87%. The issue is priced at a P/BV of 4.25 based on its NAV of Rs. 13.66 as of December 31, 2024, and at a P/BV of 2.15 based on its post-IPO NAV of Rs. 26.96 per share (at the upper cap. The NAV data as of December 31, 2024 differs in offer document and in IPO ad. As per IPO ad, the NAV is shown Rs. 14.40 and clarification is needed on this matter.

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 21.17. Based on FY24 earnings, the P/E stands at 25.11. The issue relatively appears fully priced. 

For the reported periods, the company has posted PAT margins of 2.16% (FY22), 2.29% (FY23), 6.52%, (FY24), 6.22% (9M-FY25), and RoCE margins of 41.20%, 35.50%, 55.71, 37.24% respectively for the referred periods. Higher margins compared to listed peer surprises and raise concern over its sustainability going forward.

DIVIDEND POLICY:
The company has not paid 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. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Vipul Organics, Mahickra Chemicals, and Ducol Organics, as their listed peers. They are trading at a P/E of 53.7, 51.8, and 39.4 (as of April 25, 2025). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER’S TRACK RECORD:
This is the 21st mandate from Unistone Capital in the last three fiscals (including the ongoing one), and out of last 10 listings, 2 opened at discount, and the rest with premiums ranging from 3.84% to 90% on the listing date.