Creative Graphics NSE SME IPO review (Apply)

•    The company is engaged in a pre-press matters with latest flexo technology.
•    The company posted growth in its top and bottom lines for the reported periods. 
•    The rise in bottom lines from FY23 onwards raise eyebrows. 
•    Based on FY24 annualized super earnings, the issue appears fully priced. 
•    Investors may park funds for the medium to long term rewards. 

ABOUT COMPANY:
Creative Graphics Solutions India Ltd. (CGSIL) is a pre-press company, engaged in the manufacturing of flexographic printing plates including Digital Flexo Plates, Conventional Flexo Printing Plates, Letter Press Plates, Metal Back Plates, and Coating Plates. The company is serving the customers across India as well as outside India namely African Countries, Thailand, Qatar, Kuwait and Nepal.

CGSIL delivers quality flexo plates with its state-of-the-art technology and equipments which meet the requirements of modern day flexo printing processes. It has remained company's constant endeavour to exceed customers' expectations with timely deliveries of custom designed flexo plates, with quality assurance. As of August 31, 2023, it had 420 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 6400000 equity shares of Rs. 10 each to mobilize Rs. 54.40 cr. at the upper cap. It has announced a price band of Rs. 80 - Rs. 85 per share. The issue opens for subscription on March 28, 2024, and will close on April 04, 2024. The minimum application to be made is for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.35% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 15.00 cr. for working capital, Rs. 11.00 cr. for repayment/prepayment of certain borrowing, Rs. 10.00 cr. for capex, Rs. 5.00 cr. for inorganic growth, and the rest for general corporate purposes.

The issue is solely lead managed by Corporate Capitalventures Pvt. Ltd., and Bigshare Services Pvt. Ltd. is the registrar of the issue. SS Corporate Securities Ltd. is the market maker for the company. 

Having issued/converted initial equity shares at par, the company issued further equity shares at a fixed price of Rs. 600 each in October 2023. It has also issued bonus shares in the ratio of 1 for 1 in May 2023, and 10 for 1 in October 2023. The average cost of acquisition of shares by the promoters is Rs. 0.21, and Rs. 0.45 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 17.89 cr. will stand enhanced to Rs. 24.29 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 206.43 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 48.04 cr. / Rs. 2.28 cr.  (FY21), Rs. 68.68 cr. / Rs. 4.65 cr. (FY22), and Rs. 91.78 cr. / Rs. 8.64 cr. (FY23). For H1 of FY24 ended on September 30, 2023, it earned a net profit of Rs. 7.24 cr. on a total income of Rs. 48.46 cr. 

For the last three fiscals, it has reported an average EPS of Rs. 83.16, and an average RONW of 45.42%. The issue is priced at a P/BV of 0.50 based on its NAV of Rs. 170.06 as of September 30, 2023, and at a P/BV of 2.58 based on its post-IPO NAV of Rs. 32.90 per share (at the upper cap).

If we attribute annualized FY24 earnings to its post-IPO fully diluted paid-p capital, then the asking price is at a P/E of 14.26. Thus the issue appears fully priced based on its super annualized earnings of FY24.

For the reported periods, the company has posted PAT margins of 4.79% (FY21), 6.81% (FY22), 9.59% (FY23), 15.06% (H1-FY24), and RoCE margins of 39.77%, 57.80%, 42.71%, 24.99% respectively for the referred periods. 

DIVIDEND POLICY:
The company has declared 10% dividend for FY23. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON 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 14th mandate from Corporate Capitalventures in the last three fiscals, out of the last 11 listings, 1 opened at discount and the rest with premiums ranging from 17.65% to 245.23% on the day of listing.