Cool Caps NSE SME IPO review (May apply)

•    CCIL is in the business of manufacturing and marketing plastic bottle caps.
•    It is operating in a highly competitive and fragmented segment. 
•    Though its top line is growing, it is witnessing pressure on margins.
•    Based on the financial data, the issue appears fully priced. 
•    Risk seeker/cash surplus investors may consider, others can ignore. 

ABOUT COMPANY: 
Cool Caps Industries Ltd. (CCIL) is mainly engaged in the business of manufacturing a wide range of Plastic Bottle Caps and closures which includes plastic soda bottle caps, plastic soft drink bottle caps, plastic mineral water bottle caps and plastic juice bottle caps from units situated in Howrah, West Bengal and Kotdwar, Uttarakhand. Apart from plain closures, it also manufactures embossed, debossed and printed closures as per client specifications.

The Company is also in the business of manufacturing face masks and the products include Mask On Plus N95 FFP2 Mask, Mask on N95 FFP2 Mask and N95 FFP2 Mask from a unit situated in Howrah, West Bengal. Over the past couple of years, the company has outgrown itself into a distinguished large-scale organization specializing in pet bottle caps of various shapes, sizes and colours along with cap handle having plentiful applications.

CCIL manufactures caps and closures in Continuous Compression Molding Machine imported from Sacmi Inc, Italy with Cool + Technology using 100% virgin food grade quality material. Production takes place in an enclosed dust-proof environment with quality testing at regular intervals. The products are packed in corrugated boxes with proper bursting strength inside plastic liners. Overall colour migration test, heavy metal testing and analysis is done to ensure a quality product.

In addition to the supply of pet bottle caps, it also trades in Shrink film as an additional service to its existing customers. This product has a demand within the existing customer base and therefore, to provide a one-stop solution to their needs, the company has started selling this product. Shrink films are manufactured by its associate concern, M/s Airborne Technologies Private Limited. Shrink film is a shrink wrap made of LDPE (Low-Density Polyethylene) material used for secondary and tertiary packaging due to its advantages and specific properties. Potential applications for collation shrink film mainly include bundle-packaging of beverages such as water, soft drinks, energy drinks, etc. and is a cost-effective substitute of formerly used corrugated boxes. The market for shrink film demand is growing and a lot of bottling/beverages companies are shifting from corrugated boxes on account of their own benefits.

Furthermore, CCIL is also involved in trading plastic granules besides using them as a raw material for its own consumption. Plastic granules are made up of particles that are formed as a result of the progressive enlargement of primary particles that change their original identity. These granules can be utilized in the production of a vast range of plastic products, such as chairs, mugs, bottles, tanks, to name a few and are known for their fine finishing and easy malleability. The company provides a wide range of granules such as Polypropylene Granule, High-Density Polyethylene (HDPE) Granules, Low-Density Polyethylene (LDPE), Linear Low-Density Polyethylene (LLDPE) Granules and many more. The plastic granules are procured domestically and also imported from foreign countries. As of January 31, 2022, CCIL had 47 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY: 
To part finance its need for working capital (Rs. 7.94 cr.) and general corporate purpose, CCIL is coming out with a book-building process IPO of 3060000 equity shares of Rs. 10 each for mobilizing Rs. 11.63 cr. at the upper cap.  It has fixed a price band of Rs. 36.00 to Rs. 38.00 per share and a minimum application to be made is for 3000 shares and in multiples thereon, thereafter. The issue opens for subscription on March 10, 2022, and will close on March 15, 2022. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.47% of the post issue paid-up capital of the company. The company has allocated NIL for QIBs, 50% for HNIs and 50% for Retail categories. 

The issue is solely lead managed by Holani Consultants Pvt. Ltd. and Link Intime India Pvt. Ltd. is the registrar to the issue. Holani Consultants Pvt. Ltd. is also the market maker for this company. 

Having issued initial equity capital at par, the company issued further shares at a price of Rs. 10.10 per share between November 2018 and December 2019. The average cost of acquisition of shares by the promoters is Rs. 5.70, Rs. 10.01 and Rs. 11.01 per share. 

Post issue CCIL's current paid-up equity capital of Rs. 8.50 cr. will stand enhanced to Rs. 11.56 cr. Based on the upper cap of the IPO pricing, the company is looking for a market cap of Rs. 43.93 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, on a consolidated basis, for the last fiscal, CCIL posted turnover/net profit of Rs. 31.30 cr. / Rs. 2.67 and for the first half of FY22 ended on September 30, 2021, it has earned a net profit of Rs. 1.34 cr. on a turnover of Rs. 19.11 cr. On a standalone basis, for the last three fiscals, CCIL posted turnover/net profits of Rs. 19.20 cr. / Rs. 1.37 cr. (FY19), Rs. 25.75 cr. / Rs. 3.21 cr. (FY20) and Rs. 31.30 cr. / Rs. 2.92 cr. (FY21). For the first half of FY22 ended on September 30, 2021, it has earned a net profit of Rs. 1.33 cr. on a turnover of Rs. 18.87 cr. 

For the last three fiscals, CCIL has posted an average EPS of Rs. 4.08 and an average RoNW of 21.00% (on a standalone basis). The issue is priced at a P/BV of 1.83 based on its NAV of Rs. 20.76 as of September 30, 2021, and at a P/BV of 1.53 based on its post-IPO NAV of Rs. 24.78 (at the higher price band). 

If we annualize FY22 earnings and attribute it to the fully diluted post-IPO paid-up equity capital, then the asking price is at a P/E of 16.38 making it a fully priced offer. 

DIVIDEND POLICY: 
The company has not declared any dividend in the reported periods of the offer documents. It will adopt a prudent dividend policy post listing based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS: 
As per offer documents, CCIL has no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
This is the 5th mandate from Holani Consultants in the last three fiscals (including the ongoing one). Out of the last 4 listings, 1 opened at par and the rest with premiums ranging from 4.94% To 47.37% on the day of listings.