Dhanlaxmi Crop NSE SME IPO review (May apply)

•    The company is technology driven seeds company with major focus on cotton seeds.
•    The company marked steady growth in its top and bottom lines for the reported periods.
•    Sudden boost in top and bottom lines for H1 of FY25 raises eyebrows and concern over its sustainability.
•    The issue is fully priced based on its FY25 annualized super earnings.
•    Well-informed investors may park funds for medium to long term.

ABOUT COMPANY:
Dhanlaxmi Crop Science Ltd. (DCSL) is a technology driven seeds company that develops, produces, processes and sells seeds for a range of field crops and vegetables, have more than 18 years of experience in the Indian seeds industry. It integrates traditional breeding techniques with biotechnology tools and seek to produce hybrid and open pollinated variety field crops and vegetable seeds that deliver higher yields, enhanced product quality and higher levels of pest and disease tolerance over naturally occurring varieties. 

Its seeds are suitable for varying agro climatic conditions, such as water availability, crop duration and soil attributes, across different geographic regions in India. DCSL produced, as of September 30 2024, seeds for 24 different field crops and vegetables and have operations in 5 states across India. The sale of cotton seeds contributes the majority of its revenue from operations, contributing 95.64%, 76.78%, 71.47% and 64.73% of revenue from operations in September 30, 2024, Fiscal 2024, 2023 and 2022, respectively. Its product portfolio includes field crop and vegetable seeds for Cotton, Wheat, Cumin, Bajra, Maize, Gram, Okra, Green Gram, SSG, Soya bean, Milky, Mustard, Groundnut, Black Gram, Guar, Castor, Sesame, Jowar, Coriander, Red Gram, Green Pea, Multifeed, Onion etc. Its research and development activities include conventional breeding programmes and the use of innovative biotechnology tools. 

As of September 30, 2024, the Company had filed a total of five applications under the PPV & FR Act, including three for cotton, one for wheat and one for green gram. As of September 30, 2024, it had received the certificates of registration under the PPV & FR Act: Cotton hybrids, ZCH-511, 25D51 and 25D55 and their parents. Two applications of the Company are in the testing stage, the final stage prior to certification. Through its research, the company has successfully developed and commercialised several hybrid seed products for cotton, such as Advance and Agniveer, Dhanvarsha, which met with commercial success because of their superior quality and yields relative to other cotton seed products at the time of their launch into the market. The sales of seeds for field crops other than cotton, such as Wheat, Cumin, Bajra, Maize presently constitute the remaining portion of business. 

Over the period, it has registered significant growth in sales of vegetable seeds and seeds of field crops other than cotton. In September 30, 2024, it produced 725 MT of raw seeds, comprising hybrids and open pollinated variety of field crops and vegetables. As of September 30, 2024, it had access to farmland in 4 states in India, primarily through contractual arrangements with over 45 Seed Growers/Organizers. As of September 30, 2024, it operated full processing facilities in Gujarat with a processing capacity of 7.3 MT per hour and an aggregate ambient storage capacity of 2,000 square meter (which can store 5,000 MT of seeds). In addition, it had access to temperature-controlled, or conditioned, storage facilities to store seeds on rent basis that have a short shelf life, with capacity to store 500 MT of seeds. 

As of date of Herring Prospectus, the Company has 1,185 Authorized Dealers/Distributors present across 4 states i.e. Gujarat, Rajasthan, Haryana and Maharashtra. Its distribution network and storage facilities (including conditioned storage facilities), which includes carrying and forwarding agent warehouses, help it meet the varying requirements of customers. As of the date of RHP, it had 67 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 4328000 equity shares of Rs. 10 each to mobilize Rs. 23.80 cr. at the upper cap. It has announced a price band of Rs. 52 - Rs. 55 per share. The issue opens for subscription on December 09, 2024, and will close on December 11, 2024. The minimum number of shares to be applied is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.51% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, the company will utilize Rs. 20.06 cr. for working capital, and the rest for general corporate purposes. 

The IPO is solely lead managed by Finshore Management Services Ltd., and Bigshare Services Pvt. Ltd., is the registrar to the issue. MNM Stock Broking Pvt. Ltd., is the Market Maker for the company. 

Having issued initial equity shares at par value, the company issued further equity shares at a fixed price of Rs. 13.00 per share in June 2015. It has also issued bonus shares in the ratio of 5 for 4 in August 2023, and 1 for 3 in July 2024. The average cost of acquisition of shares by the promoters is Rs. 3.22, Rs. 3.33, and Rs. 3.65 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 12.00 cr. will stand enhanced to Rs. 16.33 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 89.80 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 35.43 cr. / Rs. 0.58 cr. (FY22), Rs. 46.64 cr. / Rs. 3.00 cr. (FY23), and Rs. 63.75 cr. / Rs. 4.65 cr. (FY24). For H1 of FY25 ended on September 30, 2024, it earned a net profit of Rs. 8.21 cr. on a total income of Rs. 119.96 cr. Thus a quantum jump in pre-IPO period not only raises eyebrows, but also concern over its sustainability.
 
For the last three fiscals, the company has reported an average EPS of Rs. 2.95 and an average RoNW of 24.77%. The issue is priced at a P/BV of 2.71 based on its NAV of Rs. 20.27 as of September 30, 2024, but the info on post-IPO NAV data is missing from its IPO ad.

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 10.05, and based on FY24 earnings, the issue price stands at 19.30 P/E. The issue relatively appears fully priced.

For the reported periods, the company has posted PAT margins of 1.64% (FY22), 6.42% (FY23), 7.30% (FY24), 6.84% (H1-FY25), but RoCE margins data is missing from offer document. 

DIVIDEND POLICY:
The company has not paid any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy post listing, based on its financial performance and future prospects. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Mangalam Seeds, and Upsurge Seeds as their listed peers. They are trading at a P/E of 17.8, and 21.7 (as of December 05, 2024). However, they are not truly comparable on an apple-to-apple basis.  

MERCHANT BANKER'S TRACK RECORD:
This is the 28th mandate from Finshore Management in the last four fiscals (including the ongoing one).  From the last 10 listings, 2 opened at discount, 1 at par and the rest listed with a premiums ranging from 7.41% to 94.44% on the listing date.