Deccan Healthcare BSE SME IPO Dec. 2018 review (May apply)

•    DHL is emerging online Nutraceutical food supplement product supplier.
•    Company is doing aggressive marketing with its 'Beyoungbharat' initiatives.
•    Imported plant and machinery to boost export earnings.
•    Added investors like Kent RO, Valuewise, DS Group etc in recent past.

ABOUT COMPANY:
Deccan Health Care Ltd. (DHL) that announced its maiden IPO in December last postponed the same due to procedural lapses on disclosures. It has now cleaned the slat and is mulling afresh IPO with modified terms. The company is into developing, manufacturing and marketing a broad range of healthcare products including nutraceutical, cosmeceutical and Ayurveda products and is known for the premium range of products in all these categories.

While it is marketing its products online as well as offline, it gives major thrust for online marketing that gave them the desired level of operations with over 1.65 lakh online loyal customers. The company follows the concept of 'Prevention is better than cure' and is competing with multinational brands that are sold at higher premiums. DHL's online portals for e-commerce are www.beyoungstore.com and www.deccanhealthcare.co.in. The company uses natural ingredients for its product formulas. It is installing new imported plant and machineries to boost its export earnings. USP for DHL is its dealing in FMCH (Fast Moving Consumer Healthcare) products that is fast growing sector.

The company has the ability to supply products in various forms such as tablets, capsules, gel, liquids, ointments, powder, pastes etc. It is an ISO 9001:2008 certified and FSSAI license company. It has PAN India presence with over 140 distributors and 6100 marketing agents. It has also entered into 2 distributorship agreements with foreign distributors situated in Kenya and Tanzania. DHL's products are marketed under brand names like 'Stay Wow', 'Be Young', 'My Nutridecc', 'Pharma Decc' and 'Stay Young'.  It has identified over 50 consumer wellness goals and over 200 diseases, disorders, disabilities which can be prevented by meeting RDA of micronutrients and it has innovated and developed cost-effective products that are unique and differentiated to combat such diseases.

The company is participating in recently announced 'Ayushman Bharat' with its 'beyoungbharat' initiatives that will help it to boost its play in nutraceutical supplement doses.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance repayment/prepayment of certain debts, purchase of plant and machinery and related civil work, working capital and general corpus fund needs, DHL is coming out with a maiden IPO of 4212000 equity shares of Rs. 10 each by way of book building route with a price band of Rs. 95-100 per share to mobilize Rs. 40.01 cr. to -42.12 cr.  cr. (based on lower and upper price bands). The issue comprises of fresh equity issue of 2212000 shares and offer for sale (OFS) of 2000000 shares. The issue opens for subscription on 18.12.18 and will close on 20.12.18. Minimum application is to be made for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. Issue constitutes 26.81% of the post issue paid up capital of the company. The issue is solely lead managed by Pantomath Capital Advisor Pvt. Ltd. while Bigshare Services Pvt. Ltd. is the registrar to the issue.

Having issued initial and subsequent equity at par, it also raised further equity in the price range of Rs. 16.80 to Rs. 35 per share between February 2008 and February 2018. It has also issued bonus shares in the ratio of 1 for 1 in January 2002. The average cost of acquisition of shares by the promoters is 'Not Determinable' and Rs. 0.11 per share. Post issue, its current paid up equity capital of Rs. 13.50 cr. will stand enhanced to Rs.15.71 cr.

FINANCIAL PERFORMANCE:
On the performance front, for the last four fiscals, DHL has posted turnover/net profits of Rs. 16.18 cr. / Rs. 3.54 cr. (FY16) and Rs. 29.39 cr. / Rs. 9.54 cr. (FY17) and Rs. 39.76 cr. / Rs. 12.69 cr. (FY18). For the Q1 of FY19, it has earned a net profit of Rs. 2.46 cr. on a turnover of Rs. 8.59 cr. For the last three fiscals, it has posted an average EPS of Rs. 8.81 and an average RoNW of 38.77%.

The issue is priced at a P/BV of 3.47 on the basis of its NAV of Rs.28.84 as on 30.06.18. On the basis of its earnings for FY18 issue is priced at a P/E of 12.4. If we annualize latest earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of 16. According to management company has historical trends of higher turnover and profits from rainy season i.e. Q2 onwards and are confident of maintaining such trends going forward.

COMPARE WITH LISTED PEER:
As per offer document, it has shown Zydus Wellness as its listed peer that is currently trading at a P/E of around 37.8 (as on 14.12.18 closing).

MERCHANT BANKER'S TRACK RECORD.
On merchant banker's front, this is the 75th mandate from its stable in last three fiscals. Out of last 10 listings, all opened with a premium ranging from 0.05% to 8% on the day of listing.