Dhyaani Tile BSE SME IPO review (Avoid)

•    DTML is in the business of flooring solutions. 
•    The segment is highly competitive and fragmented. 
•    Its financial performance is not matching the asking price. 
•    Tiny equity post IPO indicates longer gestation for migration to the mainboard.
•    Simply avoid this pricy issue. 

ABOUT COMPANY:
Dhyaani Tile and Marblez Ltd. (DTML) was originally incorporated as Dhyaani Enterprise Pvt. Ltd.) is currently engaged in the business of trading vitrified tiles used primarily for flooring solutions. It commenced this business in the year 2019, upon takeover of the business from the earlier promoters. Earlier to this, the company was engaged in the business of trading agro commodities. As of the date of filing of this offer document, it had 12 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 1.80 cr.) and general corporate purpose (Rs. 0.40 cr.), DTML is coming out with a maiden IPO of 480000 equity shares of Rs.10 each at a fixed price of Rs. 51 per share to mobilize Rs. 2.45 cr. The issue opens for subscription on March 30, 2022, and will close on April 04, 2022. Minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 31.58% of the post issue paid-up capital of the company. DTML is spending Rs. 0.25 cr. for this IPO process, indicating structured funding for it.  

The issue is solely lead managed by GYR Capital Advisors Pvt. Ltd. and KFin Technologies Ltd. is the registrar to the issue. Giriraj Stock Broking Pvt. Ltd. is the market maker for this company. 

Having issued initial equity shares at par, DTML issued further equity shares at a price of Rs. 95 per share in October 2021, and has also issued bonus shares in the ratio of 7 for 1 in January 2022. The average cost of acquisition of shares by the promoters is Rs. 8.22 per share. 

Post-IPO, DTML's current paid-up equity capital of Rs. 1.04 cr. will stand enhanced to Rs. 1.52 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 7.75 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, DTML has posted turnover / net profits (loss) of Rs. 9.36 cr. / Rs. 0.10 cr. (FY19), Rs. 7.13 cr. / Rs. - (0.07) cr. (FY20), Rs. 15.11 cr. / Rs. 0.27 cr. (FY21). For the first half of FY22 ended on September 30, 2021, it has earned a net profit of Rs. 0.24 cr. on a turnover of Rs. 10.41 cr. Pre-IPO and IPO year performance leads to belief in window dressing to lure investors for the IPO. 

For the last three fiscals, the company has reported an average EPS of Rs. 0.95 and an average RoNW of 15.74%. The issue is priced at a P/BV of 0.44 based on its NAV of Rs. 116.86 as of September 30, 2021, (it's on the basis of Pre- bonus/fresh issue) and at a P/BV of 1.93 based on its post-IPO NAV of Rs. 26.46. Data given in prospectus on pre-bonus/fresh issue is nothing but an eyewash. 

If we annualize super earnings for FY22 and attribute it to the post IPO fully diluted equity, then the asking price is at a P/E of 15.94 (just an eyewash) making it a fully priced bet. Based on its last three fiscals average the P/E comes to 53.68. 

DIVIDEND POLICY:
DTML has not declared any dividend since incorporation. It will adopt a prudent dividend policy post listing based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, DTML has shown Kajaria Ceramics, Somany Ceramics and Orient Bell as its listed peers. They are currently trading at a P/E of 41.69, 24.95 and 32.22 (as of March 25, 2022). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the third mandate from GYR Capital in this fiscal itself. The last two listings marked opening at a premium ranging from 4.05% to 6.15% on the day of listing. Currently, they are trading at a discount.