Aten Papers BSE SME IPO June 25 - review (May apply)

•    The company is engaged in the trading in the paper product supply chain. 
•    It provides products suitable for packaging industry and follows B2B mode of operations.
•    It posted steady growth in its top and bottom lines.
•    The sudden boost in bottom lines from FY24 onwards raise eyebrows and concern over its sustainability going forward.
•    Based on its recent financial performance, the issue appears aggressively priced.
•    Well-informed investors may park moderate funds for medium term in this pricey bet.

PREFACE:
The company originally planned its IPO in the last week of March 2025, but postponed it and is now going public with its financial data till March 31, 2025. However, there are few garbles in its offer document that leads to some confusion. Boosted profits form FY24 onwards raise eyebrows and concern over its sustainability as it is operating in a highly competitive segment.

ABOUT COMPANY:
Aten Papers & Foam Ltd. (APFL) operates as an important intermediary in the Paper Product Supply Chain. As a crucial middleman in the paper product supply chain, it procures paper from different paper mills and resell them to clients in the packaging products industry. Examples of these products include Kraft Paper and Duplex Board. The company also purchase Wastepaper from stockiest and sell them to Paper mills which is crucial raw material for such mills. A wide range of grades, thicknesses, widths, and standards are available in product portfolio for Kraft papers and Duplex boards and other according to customer specifications.

The paper products manufactured by customers have a variety of end use applications and are used mainly in the packaging industry. APFL sells papers in the domestic markets specially in the state of Gujarat. It attributes growth to the expertise and dedication of management team. Their extensive experience of more than two decades, they play a pivotal role in guiding strategic decisions and daily operations. 

The company is planning to setup wastepaper processing unit at three locations in the Ahmedabad City by installing requisite machineries. It will utilize part of Issue proceeds to setup wastepaper processing units. Company intends to setup 3 (three) processing Units viz. Proposed Unit I is located in Changodar, Ahmedabad (which is currently used as Godown), Unit II is proposed to be located in Sanand, Ahmedabad and Unit III is proposed to be located in Narol, Ahmedabad. The company will process waste papers which is crucial raw material for various paper mills. As of March 31. 2025, it had 14 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 3300000 equity shares to mobilize Rs. 31.68 cr. at the upper cap. The company has announced a price band of Rs. 91 – Rs. 96 per share of Rs. 10 each. The issue opens for subscription on June 13, 2025, and will close on June 17, 2025. The minimum number of shares to be applied is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 32.04% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, the company will utilize Rs. 15.50 cr. for working capital, Rs. 4.28 cr. for capital expenditure, and the rest for general corporate purposes. 

The IPO is solely lead managed by Swastika Investmart Ltd., and Skyline Financial Services Pvt. Ltd., is the registrar to the issue. Sunflower Broking Pvt.  Ltd., is the Market Maker for the company. Sunflower Broking is also a syndicate member. The issue is underwritten to the tune of 15% by Swastika Investmart, and up to 85% by Sunflower Broking Pvt. Ltd.

After issuing initial equity shares at par value, the company issued bonus shares in the ratio of 6 for 1 May 2024. The average cost of acquisition of shares by the promoters is Rs. 1.43 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 7.00 cr. will stand enhanced to Rs. 10.30 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 98.88 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last four fiscals, the company has posted a total income/net profit of Rs. 89.82 cr. / Rs. 0.76 cr. (FY22), Rs. 91.00 cr. / Rs. 0.50 cr. (FY23), Rs. 96.80 cr. / Rs. 2.78 cr. (FY24), Rs. 138.70 cr. / Rs. 7.01 cr. (FY25). 

For the last four fiscals, the company has reported an average EPS of Rs. 5.45 and an average RoNW of 36.24%. The issue is priced at a P/BV of 2.70 based on its NAV of Rs. 20.06 as of March 31, 2025, but its post-IPO NAV data is missing from the documents.

If we attribute FY25 super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 14.10. Based on FY24 earnings, the P/E stands at 35.56. The issue relatively appears aggressively priced.

According to the management, due to the pandemic, they suffered a setback in its bottom lines for FY22 and FY23, but it regains pre-Covid levels and is set for bright prospects ahead. Post proposed expansion, the company will be able to earn higher top lines with commensurate rise in bottom lines. Shifting preferences for paper/corrugated/kraft paper packaging augurs well for the company.

For the reported periods, the company has posted PAT margins of 0.85% (FY22), 0.55% (FY23), 2.87%, (FY24), 5.06% (FY25), and RoCE margins of 8.77%, 8.70%, 23.23%, 43.84% for the referred periods, respectively. 

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

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has no listed peers to compare with.

MERCHANT BANKER’S TRACK RECORD:
This is the 13th mandate from Swastika Investmart in the last three fiscals.  From the last 10 listings, 1 opened at discount, 1 at par, and the rest with aa premium ranging from 0.14% to 110.64% on the listing date.