Avon Moldplast NSE SME IPO review (Avoid)

Avon Moldplast Ltd. (AML) is engaged in manufacturing of quality plastic molded furniture under the brand name of 'AVON' since 2002. The Company has a fully functional manufacturing facility located at A-7/36-39, South of G. T. Road Industrial Area, Electrosteel Casting Compound, Ghaziabad 201009, Uttar Pradesh. Company’s Product Portfolio includes Molded Chairs, Molded Stools, Molded Tables and Molded Baby Chairs and Baby Desks

To part finance its plans for acquiring additional molds for Chairs, Cupboards, Table etc., working capital and general corpus fund needs,  AML is coming out with a maiden IPO of 884000 equity shares of Rs. 10 each at a fixed price of Rs. 51 per share to mobilize Rs. 4.51 crore. Issue opens for subscription on 12.07.18 and will close on 18.07.18. Minimum application is to be made for 2000 shares and in multiples thereon, thereafter.  Issue constitutes 27.17% of the post issue paid up capital of the company. Post allotment, shares will be listed on NSE SME Emerge. Issue is solely lead managed by Turnaround Corporate Advisors Pvt. Ltd. and Mas Services Ltd. is the registrar to the issue. Having raised most of its equity at par, it issued 80000 shares at a price of Rs. 100 per share (on the basis of Rs. 10 FV) in March 2008 and has also issued bonus shares in the ratio of 2 for 1 in January 2018. Average cost of acquisition of shares by the promoters is Rs. 7.17 and Rs. 7.56 per share. Post issue, AML’s current paid up capital of Rs. 2.37 cr. will stand enhanced to Rs. 3.25 cr.

On performance front, for last four fiscals, AML has posted turnover/net profits of Rs. 6.17 cr. / Rs. 0.05 cr. (FY14), Rs. 8.04 cr. / Rs. 0.04 cr. (FY15), Rs. 10 cr. / Rs. 0.06 cr. (FY16) and Rs. 13.85 cr. / Rs. 0.10 cr. (FY17). For the first 10 months ended on 31.01.18 of FY18 it has earned net profit of Rs.0.69 cr. on a turnover of Rs. 18.92 cr. Thus sudden jump in top and bottom lines for FY18 so far is a bit surprising. For last three fiscals it has posted an average EPS of Rs. 0.31 and an average RoNW of 2.80%. Issue is priced at a P/BV of 4.49 on the basis of its NAV of Rs. 11.37 as on 31.01.18 and at a P/BV of 2.30 on the basis of its post issue NAV of Rs. 22.14. If we annualize latest earnings and attribute it on post issue capital, then asking price is at a P/E of around 20 against industry composite of 28. As per offer documents, it has shown Nilkamal, Supreme Ind., Prima Plastics and Wim Plast as its listed peers that are currently trading at a P/Es of around 20, 33, 33 and 23. (as on 06.07.18). All these peers are way ahead of this company, but company is asking more or less same P/E for its issue. Considering its poor track record, issue is priced very aggressively. Page 69 of the offer document clearly indicates exorbitant pricing in compare with listed peers even as on 31.03.17 working basis. Company’s current debt ratio of 1.09 will stand reduced to 0.47 post this issue.

On merchant banker’s front, this is the first mandate from its stable and has no track record.