Debock Sales NSE SME IPO review (Avoid)

Debock Sales and Marketing Ltd. (DSML) is engaged in the business of manufacturing and trading of agricultural equipment. It manufactures and supplies range of agricultural equipment mainly Tractor Trolley, Agricultural Thresher, Mould Board Ploughs, Mounted Disc Ploughs, Tillers, Tanker, Combine Machine, Seed Drill Machine, Mounted Disc Harrows, Tractor Cultivators, Chaff Cutters etc. DSML is also engaged in the hospitality services. Keeping in consideration the future concept of tourism in Rajasthan, particularly in Deoli district area, where there is no better option of hotels are available. Company decided to commence its business in hospitality services by opening a class hotel (Hotel Debock Inn) in July 2015 at Deoli in Tonk District on NH -12 in July 2015 and has entered into a MOU with Rajasthan Government.

To part finance its working capital and general corpus fund needs, DSML is coming out with a maiden IPO of 2220000 equity shares of Rs. 10 each with a fixed price of Rs. 20 per share to mobilize Rs. 4.44 crore. Issue opens for subscription on 24.05.18 and will close on 28.05.18. Minimum application is to be made for 6000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. Issue is solely lead managed by Gretex Corporate Services Pvt.Ltd. and Cameo Corporate Services Ltd. is the registrar to the issue. Issue constitutes 27.01% of the post issue paid up capital of the company. Having raised initial equity at par, it raised further equity in the price range of Rs. 11 to Rs. 32 per share. Average cost of acquisition of shares by the promoters is Rs. 26.93 per share. Post issue, its current paid up equity capital of Rs. 6.00 cr. will stand enhanced to Rs. 8.22 cr.

On performance front, for last three fiscals, DSML has posted turnover/net profits of Rs. 4.09 cr. / Rs. 0.02 cr. (FY15), Rs. 10.27 crf. / Rs. – (0.02) cr., (FY16) and Rs. 16.15 cr. / Rs. 0.51 cr. (FY17). For first nine months ended on 31.12.17 of FY18 it has earned net profit of Rs. 0.27 cr. on a turnover of Rs. 7.71 cr. Thus while it has shown growth in top line, bottom line has remained in consistent. On an average basis, FY18 working so far lagging behind on top and bottom lines. If we annualize latest earnings and attribute it on fully diluted equity post issue then asking price is at a P/E of around 45 plus. Thus it is priced very aggressively.  For last three fiscals, it has posted an average EPS of Rs. 5.76 and an average RoNW of 16.23%. Issue is priced at a discount to its NAVs of Rs. 29.66 (31.12.17) and Rs. 27.05 (post issue). As per offer documents it has shown Sprayking Agro and Indian Hotels as it listed peers. Comparison with Indian Hotels is really surprising as it has no any star rating for hospitality business. Spraking is trading at a P/E of around 102 (as on 18.05.18) but cannot be compared with DSML as an apple to apple as it is in brass part manufacturing.

On merchant banker’s front, this is the 11th mandate from its stable in last three fiscals. Out of last 10 listings 3 opened at discount, 4 at par and 3 with a premium ranging from 1.92% to 8% on the day of listing.