Dindigul Farm BSE SME IPO review (Apply)

•    The company is primarily engaged in processing of whole milk and skimmed milk.
•    It is making dairy ingredients including milk proteins, dairy whitener etc. 
•    After posting losses for FY21 and FY22 due to pandemic, it marked boosted performance post streamlining its production facilities.
•    Based on FY24 annualized super earnings, the issue appears fully priced. 
•    Investors may park funds for medium to long term.

ABOUT COMPANY:
Dindigul Farm Product Ltd. (DFPL) is primarily engaged in processing of whole milk and skimmed milk to make dairy ingredients including, milk protein concentrates, skimmed milk powder, dairy whitener, whey protein concentrate, milk whey powder, casein, unbranded cream, butter and fat filled powders for infant milk formula. Its processing facility is situated at Dindigul and is spread over 15 acres. DFPL's management system has been assessed and determined to comply with the requirements of FSSC 22000. It also follows and complies with requirements of various relevant authorities in industry such as FSSAI, Halal, Kosher, Export Import Council of India, Europe Regulations in respect of certain of its products. The company has also obtained registration cum membership certificate from APEDA.

Its procurement operations consist of an average procurement of approximately 50,000 litres per day of milk directly from farmers and around 30,000-1,00,000 litres per day of whole milk from open market or third-party suppliers. As of the date of the RHP, it had built a network of more than 150 village collection centers, with direct access to more than 4,000 farmers and more than 50 dairy farms. The company procures whole milk either directly from the farmers and through third party suppliers. The skimmed milk is procured by it from third party suppliers, majorly from its Group Company A R Dairy Food Private Limited.

It places significant emphasis on quality control and assurance processes across the business model ensuring and setting the right customer expectation and assurance models. The whole milk procured by us is tested by automatic Milk analyzers placed at Village Level Milk Collection centers and a combined quality and sampling methods at Chilling Center Level. Its key products received and tested in regular intervals by NABL approved food testing labs to comply the requirements of the above stated quality certifying / assuring / inspection authorities Like FSSC etc. Quality food safety forms a part of its policy and it believes is one of the main drivers of business. It has well defined documented quality system and Standard Operating procedures (SOPs) which is monitored at various stages of procurement and processing.

DFPL markets its products under the brand name ENNUTRICA, Activday and currently supply to a wide number of customers from different industries. For financial year 2022-23, it sold products in more than 15 states domestically and 3 countries internationally. However, it aims to expand international operations by looking to enter more ASEAN and European countries. It mainly supplies products to Dairy Industry, Food Ingredients industry, nutrition industry, ice cream industry and baking industry. It marked low capacity utilization (on an average around 49%) for the last three fiscals. As of December 31, 2023, it had 101 employees on its payroll. 

Pursuant to the share purchase on June 30, 2022, by Indrayani Biotech Limited from some of then existing shareholders, IBL acquired 7,33,482 Equity Shares constituting 51.00% of the then existing paid-up equity share capital. As on date, IBL holds 42.59% of the paid-up equity share capital. IBL is currently in limelight following change in management and the shift in its business model.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 6450000 equity shares of Rs. 10 each to mobilize Rs. 34.83 cr. at the upper cap. It has announced a price band of Rs. 51 - Rs. 54 per share. The issue opens for subscription on June 20, 2024, and will close on June 24, 2024. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.40% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 12.12 cr. for funding capex, Rs. 13.84 cr. for working capital and the rest for general corporate purposes.

The issue is solely lead managed by Beeline Capital Advisors Pvt. Ltd., and Link Intime India Pvt. Ltd. is the registrar to the issue. Beeline Group's Spread X Securities Pvt. Ltd. is the market maker for the company. 

The company has issued initial equity capital at par value and has also issued fresh equity shares at a fixed price of Rs. 50 in December 2023. The average cost of acquisition of shares by the promoters is Rs. 6.49, Rs. 10.00 and Rs. 11.68 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 17.98 cr. will stand enhanced to Rs. 24.43 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 131.92 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit/ - (loss) of Rs. 18.41 cr. / Rs. - (4.62) cr. (FY21), Rs. 28.45 cr. / Rs. - (4.17) cr. (FY22), and Rs. 81.99 cr. / Rs. 5.17 cr. (FY23). For 267 days of FY24 ended on December 23, 2023, it earned a net profit of Rs. 5.89 cr. on a total income of Rs. 68.77 cr. The sudden boost in its top and bottom lines from FY23 raise eyebrows and sustainability of such trends going forward as the segment is highly competitive and fragmented. 

For the last three fiscals, it has reported an average EPS of Rs. - Rs. 0.84, and an average RoNW of (Not ascertainable) %. The issue is priced at a P/BV of 23.58 based on its NAV of Rs. 2.29 as of December 23, 2023, and at a P/BV of 3.09 based on its post-IPO NAV of Rs. 17.46 per share (at the upper cap).

If we attribute annualized FY24 earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 16.36. The issue appears fully priced. 

For the reported periods, the company has posted PAT margins of - (26.20) % (FY21), - (14.71) % (FY22), 6.33% (FY23), 8.57% (267D-FY24), and RoCE margins data is missing for the referred periods. 

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

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Dodla Dairy, Parag Milk Foods, and Modern Dairies, as their listed peers. They are trading at a P/E of 37.9, 24.4, and 8.10 (as of June 14, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 42nd mandate from Beeline Capital in the last three fiscals (including the ongoing one), out of the last 10 listings, all opened at a premiums ranging from 5.88% to 386.67% on the date of listing.