Arvee Laboratories NSE SME IPO Review (Avoid)

Arvee Laboratories (India) Ltd. (ALL) that started as a trader of third party specialty chemicals is now manufacturing it. It currently operates supplier’s operations and has expanded the capacities. It mulls takeover of these facilities and is in the process of formalities. Company’s product includes Polymer Modifiers, Contrast Media Intermediates, Drug Intermediates and its plant utilization has never gone above 47% in last four fiscals.

To part finance its repayment of unsecured loans of promoters, ALL is coming out with a maiden IPO of 1460000 equity shares of Rs. 10 each at a fixed price of Rs. 61 per share to mobilize Rs. 8.91 crore. Issue opens for subscription on 09.02.18 and will close on 14.02.18. Minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. Issue constitutes 26.50% of post issue paid up capital of the company. Issue is solely lead managed by Sarthi Capital Advisors Pvt. Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Average cost of acquisition of shares by the promoters is Rs. 10 per share. It has raised entire equity at par so far. Post issue its current paid up equity capital of Rs. 4.05 cr. will stand enhanced to Rs. 5.51 cr.

On performance front, ALL has posted turnover/net profits of Rs. 11.84 cr. / Rs. 0.02 cr. (FY14), Rs. 13.05 cr. / Rs. -1.65 cr. (loss) (FY15), Rs. 26.92 cr. / Rs. 0.19 cr. (FY16) and Rs. 34.94 cr. / Rs. 1.55 cr. (FY17). Thus it has marked inconsistency in bottom lines for all these years. For first half of the current fiscal, it has earned net profit of Rs. 0.32 cr. on a turnover of Rs. 19.80 cr. sudden jump in bottom line for FY17 is a bit surprising. For last three fiscals it has posted an average EPS of Rs. 1.15 and average RoNW of 1.46%. Issue is priced at a P/BV of 5.88 based on its NAV of Rs. 10.36 as on 31.03.17 and at a P/BV of 2.57 on the basis of its post issue NAV of Rs. 23.77. If we annualize latest earnings and attribute it on fully diluted post issue equity then asking price is at a P/E of around 52 plus. On the basis of FY17 earnings P/E comes to around 22. Thus issue is priced aggressively. P/Es of its listed peers are Transpek (21), Thirumalai (22) and Finotex (20).  

On merchant banker’s front, this is the 29th mandate from its stable in last three years. Out of last 10 listings, 1 opened at discount, 1 at par and the rest with a premium ranging from 1% to 153% on the day of listing. 153% premium opening was marked by the only main board IPO from its stable i.e. Salasar Techno.