Barflex Poly NSE SME IPO review (May apply)

•    The company is in the business of manufacturing and marketing of flexible packaging materials.
•    Over the years it expanded its product portfolio with additional plants and machineries.
•    It posted steady growth in its top line, but the hefty margins reported by it for all these years raise eyebrows.
•    Based on its recent earnings, the issue relatively appears reasonably priced.
•    The sustainability of the margins reported holds the key for the future trends.
•    Well-informed Investors may park funds for medium term.

ABOUT COMPANY:
Barflex Polyfilms Ltd. (BPL) was incorporated as a private limited company on January 24, 2005, with the business to manufacture flexible packaging material in first manufacturing unit situated at Plot No-17, Industrial Area Barortiwala, Baddi, Distt- Solan, Himachal Pradesh-174103, India (“Unit -I”). This Unit -I manufacture barrier COEX films, laminates and PVC (poly vinyl chloride) labels. The installed capacity of Unit -I was to manufacture 2400 MT per annum of co-extruded multilayer plastic films and pouches.

In the year 2008, the Company expanded its business operations with intent to increase customer base with the strategies like: (a) set up a manufacturing unit adjacent to Unit-I (“Unit – II”). The installed capacity of Unit -II was to manufacture PVC shrink sleeves 950 MT per annum; (b) set up an additional manufacturing unit at Plot No-15, Industrial Area Barotiwala, Tehsil-Kasauli, Baddi, Distt- Solan, Himachal Pradesh-174103 (“Unit -III”). The objective of Unit -III is to manufacture PVC stretch and plastic films and pouches at 865 MT per annum. In the year 2011 and 2012, the Company further enhanced the installed capacity of Unit-II. The current revised capacity of Unit II to manufacture pouches, plastic film, laminates, PVC shrink sleeves is 3000 MT per annum.

It is currently engaged in manufacturing of COEX films, laminates and labels. It manufactures flexible packaging material suitable for packaging products in FMCG industry, processed foods, adhesive, engineering, pharmaceutical industry, cosmetics, construction industry and others. Its major customers are known brands in their respective sector as well as in the domestic market. At present, it manufactures 3-layer poly films, 5-layer poly films, laminates, vacuum pouches, 5-layer bulk liners and PVC shrink labels. It is planning to start manufacturing 7-layer films as well, post expansion. This will help it to become preferred vendor in packaging material, for customers. As of November 30, 2024, it had 112 employees on its payroll and additional 60 contract labourers in various departments.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route combo IPO of 6569875 equity shares of Rs. 10 each to mobilize Rs. 39.42 cr. at the upper cap. The issue consists of 2053000 fresh equity shares issue worth Rs. 12.32 cr. (at the upper cap) and an Offer for Sale (OFS) of 4516875 shares (worth Rs. 27.10 cr. at the upper cap). It has announced a price band of Rs. 57 – Rs. 60 per share. The issue opens for subscription on January 10, 2025, and will close on January 15, 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 26.55% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, the company will utilize Rs. 23.07 cr. for capex on purchase of plant and machinery, and the rest for general corporate purposes. 

The IPO is solely lead managed by Almondz Financial Services Ltd., and Maashitla Securities Pvt. Ltd., is the registrar to the issue. Almondz group’s Almondz Global Securities Ltd., is the Market Maker for the company. Almondz Financial Services Ltd. is also the syndicate member.

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 40.00 – Rs. 2600 per share between July 2005, and December 2010. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NIL, and Rs. 6.16 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 22.70 cr. will stand enhanced to Rs. 24.75 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 148.50 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total revenue/net profit of Rs. 94.10 cr. / Rs. 7.94 cr. (FY22), Rs. 110.41 cr. / Rs. 10.13 cr. (FY23), and Rs. 116.12 cr. / Rs. 16.24 cr. (FY24). For 8M of FY25 ended on November 30, 2024, it earned a net profit of Rs. 13.49 cr. on a total revenue of Rs. 78.02 cr. 

For the last three fiscals, the company has reported an average EPS of Rs. 5.65 and an average RoNW of 23.35%. The issue is priced at a P/BV of 1.76 based on its NAV of Rs. 34.07 as of November 305, 2024, and at a P/BV of 1.62 based on its post-IPO NAV of Rs. 37.05 per share (at the upper cap).

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 7.33. Based on FY24 earnings, the P/E stands at 9.15. The issue relatively appears reasonably priced. But going forward, all depends on its margins as no listed peers have such earnings.

For the reported periods, the company has posted PAT margins of 8.49% (FY22), 9.28% (FY23), 14.73% (FY24), 20.55% (8M-FY25), and RoCE margins of 24.41%, 23.67%, 27.21%, 8.66%, respectively for the referred periods.

DIVIDEND POLICY:
The company has not declared any dividends for the periods reported in the offer documents. 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 Uma Converter, and Purv Flexipack, as their listed peer. They are trading at a P/E of 14.06 and 38.6 (as of January 08, 2025). However, they are not truly comparable on an apple-to-apple basis.  

MERCHANT BANKER’S TRACK RECORD:
This is the 1st mandate from Almondz Financial in the last three fiscals.  It has no track records for any past listings.