Beezaasan Explo BSE SME IPO review (May apply)

•    The company is engaged in the business of manufacturing and supplying a wide array of explosives and related accessories.
•    It marked growth in its top and bottom lines.
•    Spectacular performance for H1 of FY25 not only raises eyebrows, but also concern over its sustainability going forward.
•    Based on its recent financials, the issue appears fully priced. 
•    Well-informed investors may park funds for medium to long term. 

ABOUT COMPANY:
Beezaasan Explotech Ltd. (BEL) deals in manufacturing and supplying a wide array of Explosives and Explosive accessories covering mainly cartridge explosives which includes Slurry Explosives, Emulsion Explosives and Detonating Fuse. Its Products are manufactured using mixture of nitrate, catering to diverse requirements. It has designed products that meet the stringent requirements of varied Industries which includes cement industry, mining industry and defence industry. The company is also supplying to Border Roads Organization and Public Sector Undertakings as well. Its manufacturing units with the technologically equipped Quality Assurance Systems which ensures high standard of inputs and outgoing products.

Initially, the Company started with slurry Explosive manufacturing unit situated at Bhanthala Village in Mahisagar District, Gujarat in the year 2018 and further, it added an Emulsion Explosive unit, additional Slurry Explosive unit and a Detonating fuse unit between the years 2020-2024 situated at the same premises in Mahisagar District. It has manufacturing facilities strategically located in and around Gujarat spread over a total area of 40,68,876.50 Sq. Ft. Its manufacturing facilities are equipped with comprehensive range of KP Machines, Strapping Machine, PLC Control Panel, etc. to support a seamless production operation and manufacturing process. The facility ensures smooth assembly process and easy logistics suitable for carrying out manufacturing operations. It has also built storage magazines near manufacturing unit at Felsani Gujarat spread over a total area of 20,37,382.19 Sq. Ft. to store the explosives. The company is strictly regulated by PESO (Petroleum Explosive Safety Organisation) for manufacturing and storing the explosives for which the license is obtained.

BEL has a licensed capacity of 45,000 Metric Ton for manufacturing Slurry Explosives with licensed premises which includes Slurry Explosives Manufacturing plant, 1 Raw Material Stores, 1 Aluminium Store, 1 Blasting Shelter, 1 Destruction yard, 1 Q.C. Lab, 1 Testing Area with connected facilities, 11,400 Metric Ton for Emulsion Explosives with licensed premises which includes Emulsion Explosives Manufacturing Plant 1 & 2 with connected facilities and 51 million Mtrs for Detonating Fuse with licensed premises which includes 1 transit sheds, 1 spinning buildings, 1PETN drying with connected facilities. In authorizing the product in the explosives industry, it needs a lab trial certificate in the presence of a PESO Officer at the manufacturing premises and the same is sent to Nagpur PESO Head-quarters for final testing. When approved by the PESO department the product is sent for field trial to different private companies for field application. After the successful field trial, these all documents are then submitted to the PESO department for approval of product authorization and manufacturing. As of December 31, 2024, it had 185 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 3424800 equity shares to mobilize Rs. 59.93 cr. (at the upper cap). The company has announced a price band of Rs. 165 – Rs. 175 per share of Rs. 10 each. The issue opens for subscription on February 21, 2025, and will close on February 25, 2025. The minimum number of shares to be applied is for 800 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.51% of the post-IPO paid-up capital of the company. The company is spending Rs. 7.60 cr. for the fresh equity issue, and from the net proceeds of the issue, the company will utilize Rs. 3.88 cr. for capex on expansion of existing manufacturing unit, Rs. 23.04 cr. for capex on new plant and machineries, Rs. 2.03 cr. for capex on expanding magazine (storage) facility, Rs. 12.44 cr. for purchase of commercial vehicle, Rs. 18.00 cr. for repayment/prepayment of certain borrowings, and the rest for general corporate purposes. Higher spending for fresh equity issue indicates funding arrangement and the issue is fully structured.

The IPO is solely lead managed by Smart Horizon Capital Advisors Pvt. Ltd., KFin Technologies Ltd., is the registrar to the issue. Rikhav Securities Ltd. is also the Market Makers for the company. Shreni Shares Ltd. is the syndicate member.

Having issued initial equity shares at par value, the company issued additional equity shares in the price range of Rs. 15 – Rs. 19 per share between April 2022 and February 2024. The average cost of acquisition of shares by the promoters is Rs. 2.52, Rs. 7.31, Rs. 7.81, and Rs. 10.00 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 9.50 cr. will stand enhanced to Rs. 12.92 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 226.12 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 141.91 cr. / Rs. 2.74 cr. (FY22), Rs. 229.17 cr. / Rs. 2.94 cr. (FY23), and Rs. 187.90 cr. / Rs. 4.87 cr. (FY24). For H1 of FY25 ended on September 30, 2024, it earned a net profit of Rs. 8.33 cr. on a total income of Rs. 101.44 cr. The quantum jump in bottom lines from FY23 onwards raises eyebrows and concern over its sustainability. 

For the last three fiscals, the company has reported an average EPS of Rs. 5.03 and an average RoNW of 21.64 %. The issue is priced at a P/BV of 5.34 based on its NAV of Rs. 32.77 as of September 30, 2024, and at a P/BV of 2.48 based on its post-IPO NAV of Rs. 70.47 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 13.58. Based on FY24 earnings, the P/E stands at 46.42. Based on its recent earnings, prima facie, the issue relatively appears fully priced. 

For the reported periods, the company has posted PAT margins of 1.95% (FY22), 1.29% (FY23), 2.61% (FY24), 8.27% (H1-FY25), and RoCE margins of 15.42%, 12.90%, 16.20%, 17.79%, for the referred periods, respectively.

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It has already adopted a dividend policy in October 2024, based on its financial performance and future prospects. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Premier Explosives, and Solar Ind., as their listed peers. They are trading at a P/E of 67.3, and 71.5 (as of February 14, 2025). However, they are not truly comparable on an apple-to-apple basis. This compare appears to be an eyewash.

MERCHANT BANKER’S TRACK RECORD:
This is the 3rd mandate from Smart Horizon in the ongoing fiscal.  The only 1 listing that took place so far, opened at a premium of 90% on the date of listing.