D K Enterprises NSE SME IPO review (May apply)

•    DEGL in the business of manufacturing paper-based packaging materials and adhesive tapes.
•    It is coming with the maiden IPO based on the last two fiscal's performance.
•    On the financial performance front, it has posted growing patterns.
•    Based on FY22 annualized earnings, the issue appears reasonably priced. 
•    Investors may consider investing with a long term perspective.

ABOUT COMPANY:
DK Enterprises Global Ltd. (DEGL) is mainly engaged in manufacturing of Paper-Based Packing Material, Self-Adhesive Tapes (specialty tapes likes Masking, Siliconized, Medical and Surface protection Tapes), Laminated Products and Flexible Packaging. It has been working almost exclusive with major multinational corporations in the consumer space.

D.K. Enterprises, a proprietorship firm of one of the promoters running its business for the last two decades which was taken over by DEGL (including all its movable assets, current assets and liabilities of manufacturing facilities of Panchkula and Vadodara) at a total consideration of Rs. 2.00 cr. (including goodwill of Rs. 162079.48) in terms of the agreement dated May 15, 2019, by issuing 20,00,000 Equity Shares of Rs. 10 each of the company to the promoter.

The company's registered office and manufacturing facilities Unit I is located in Panchkula at Haryana and Unit II at Vadodra in Gujarat. It is proposing to commence manufacturing facilities at Baddi in Himachal Pradesh for manufacturing of Clear/Printed Bopp Tape, Masking/specialty tapes and Laminated Products. The company also proposing to installed machinery at Vadodara (Unit II) for the manufacturing of Clear/Printed Bopp Tape, Masking/specialty tapes and Laminated Products.

At present, it is also holding an 80% stake in a partnership firm namely M/s. Satguru Engravures which is engaged in manufacturing and sale of Soap Stiffeners, Soap Wrappers, Banding BOPP Tapes, Laminates etc. and its manufacturing facilities is located at Khasra No. 619/489, Village Koundi, Tehsil Baddi, Distt. Solan, Himachal Pradesh.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for setting up of new manufacturing unit at Baddi (Rs. 3.05 cr.), working capital (Rs. 3.10 cr.), general corporate purpose (Rs. 1.05 cr.), DEGL is coming out with a maiden IPO of 1998000 equity shares of Rs. 10 each at a fixed priced of Rs. 40 per share to mobilize Rs. 7.99 cr. The issue opens for subscription on October 07, 2021, and will close on October 12, 2021. Minimum application is to be made for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.61% of the post issue paid-up capital of the company. DEGL will spend Rs. 0.79 cr. for this IPO process. It indicates pre-funding arrangements are done for this fully structured issue. 

The issue is solely lead managed by Beeline Broking Ltd. and Skyline Financial Services Pvt. Ltd. is the registrar to the issue. Nikunj Stock Brokers Ltd. is a market maker for this IPO. 

Having issued/converted initial equity at par, the company raised further equity at Rs. 40 per share in March 2021 and has also issued bonus shares in the ratio of 1 for 1 in April 2021. 

The average cost of acquisition of shares by the promoters is Rs. 6.04, Rs. 19.18 and Rs. 19.49 per share. 

Post issue, DEGL's current paid-up equity capital of Rs. 5.51 cr. will stand enhanced to 7.51 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 30.03 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last two fiscals, DEGL has (on a consolidated basis) reported turnover/net profit of Rs. 45.55 cr. / Rs. 1.50 cr. (FY20) and Rs. 64.96 cr. / Rs. 2.44 cr. (Fy21). For the first three months of FY22 ended on June 30, 2021, it has earned a net profit of Rs. 1.00 cr. on a turnover of Rs. 19.13 cr.  

For the last two fiscals, it has posted an average EPS of Rs. 5.35 and an average RoNW of 35.61%. The issue is priced at a P/BV of xx based on its NAV of Rs. 14.48 per share as of March 31, 2021, and at a P/BV of xx based on its post-issue NAV of Rs. 22.85 per share. 

If we attribute FY22 annualized earnings on fully diluted post issue paid-up equity capital of the company, then the asking price is at a P/E of 7.51 making this IPO a reasonably priced bet. 

COMPARISON WITH LISTED PEERS:
As per the offer documents, DEGL has shown Anuroop Packaging, Hindustan Adhesives and GKP Printing as its listed peers. They are currently trading at a P/E of 25.09, 15.56 and 86.85 (as of October 04, 2021). However, they are not comparable on an apple to apple basis. 

DIVIDEND POLICY:
Since its inception, the company has not declared any dividend till now. Post listing, it will adopt a prudent dividend policy based on its financial performance and future prospects. 

MERCHANT BANKER'S TRACK RECORDS:
This is the 12th mandate from Beeline in the last four fiscals (including the ongoing one). Samor Reality is yet to be listed. Out of the last 10 listings, 3 opened at discount, 1 at par and the rest at the premiums ranging from 1.37% to 10% on the date of listings. Thus it has an average track record.