Davin Sons BSE SME IPO review (May apply)

•    The company is engaged in manufacturing readymade garments and distribution of FMCG products.
•    The company got converted from proprietorship to public limited entity in 2022.
•    It posted growth in its top and bottom lines for FY24 and FY24.
•    Based on recent earnings the issue appears fully priced.
•    Well-informed investors may park moderate funds for medium term. 

ABOUT COMPANY:
Davin Sons Retail Ltd. (DSRL) is engaged into the business of manufacturing and designing of readymade garments offering diverse range of high-quality jeans, denim jackets and shirts for other brands. Its garment manufacturing process includes cutting, stitching, sewing, finishing, inspection and packing. The company outsources the entire garments manufacturing on job work basis from third party contractors from time to time and provides the technical specifications such as designs, pattern, quality, fabric etc. to them who, based on its specifications, procure the requisite raw materials and begin the manufacturing process. The products delivered to DSRL from third party contractors are completely finished and packaged to warehouse. However, the company has not entered into Job work agreement.

Recently, the company added distribution of FMCG products to its B2B customers and thus currently it has around 55% revenue from garment business and the rest from FMCG distribution. It currently operates in Delhi, West Bengal, UP and Bihar regions. As of the date of filing this offer document, it had 20 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 1596000 equity shares of Rs. 10 each at a fixed price of Rs. 55 per share to mobilize Rs. 8.78 cr. The issue opens for subscription on January 02,2025, and will close on January 06, 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 BSE SME. The issue constitutes 30.33% of the post-IPO paid-up capital of the company. The company is spending Rs. 1.30 cr. for this IPO process, and from the net proceeds of the IPO, the company will utilize Rs. 1.36 cr. for capex on purchase of warehouse, Rs. 4.22 cr. for working capital, and Rs. 1.90 cr. for general corporate purposes

The IPO is solely lead managed by Navigant Corporate Advisors Ltd., and KFin Technologies Ltd., is the registrar to the issue. Aftertrade Broking Pvt. Ltd. is the market maker for the company. The issue is underwritten to the tune of 15% by Navigant Corporate and 85% by Aftertrade Broking. 

Having issued initial equity shares at par value, the company issued/converted further equity shares in the price range of Rs. 50 – Rs. 80 per share between March 2023 – June 2023. It has also issued bonus shares in the ratio of 5 for 1 in May 2023, and 2 for 1 in June 2023. The average cost of acquisition of shares by the promoters is Rs. 5.33, Rs. 9.22, Rs. 10.62, Rs.13.81, and Rs. 16.37 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 3.67 cr. will stand enhanced to Rs. 5.26 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 28.95 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last two fiscals (post turning public limited entity), the company has posted a total income/net profit of Rs. 3.91 cr. / Rs. 0.57 cr. (FY23), and Rs. 13.39 cr. / Rs. 1.64 cr. (FY24). For H1 of FY25 ended on September 30, 2024, it earned a net profit of Rs. 0.74 cr. on a total income of Rs. 6.34 cr. 

Earlier, as a proprietor ship concern under the banner of Jesus Shirt, it marked total income/net profit of Rs. 4.12 cr. / Rs. 0.12 cr. (FY20), Rs. 1.52 cr. / Rs. 0.07 cr. (FY21), Rs. 0.89 cr. / Rs. 0.06 cr. (FY22), and Rs. 1.33 cr. / Rs. 0.37 cr. (for a broker period of April 01, 2022 to February 28, 2023)

For the last two fiscals, the company has reported an average EPS of Rs. 3.69 and an average RoNW of 36.98%. The issue is priced at a P/BV of 3.21 based on its NAV of Rs. 17.12 as of September 30, 2024, and at a P/BV of 1.92 based on its post-IPO NAV of Rs. 28.61 per share.

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 19.64, and based on FY24 earnings, it stands at 17.63. The issue relatively appears fully priced.

For the reported periods, the company has posted PAT margins of 14.78% (FY23), 12.25% (FY24), 11.71% (H1-FY25), and RoCE margins of 33.21%, 54.52%, 15.37%, for the referred periods respectively. 

DIVIDEND POLICY:
The company has not declared any dividends since incorporation. 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 is comparing itself as peer (unlisted) which is a big surprise. 

MERCHANT BANKER’S TRACK RECORD:
This is the 5th mandate from Navigant Corporate in the last four fiscals, out of the last 4 listings 1 listed at discount, while others listed with premiums ranging from 3.07% to 54.47% on the date of listing.