EP Biocomposites BSE SME IPO review (Avoid)

•    EPBL is engaged in manufacturing and supplying FRP products and sanitation solutions.
•    It has marked steady growth in its top and bottom lines. 
•    Tiny equity capital post IPO indicates longer gestation for migration.
•    Based on FY22 earnings, the issue is priced aggressively.
•    There is no harm in ignoring this pricy bet. 

ABOUT COMPANY:
EP Biocomposites Ltd. (EPBL) is into manufacturing and supply of fiber reinforced polymers (FRP) products such as door shutters, frames, Biodigestor Tanks, Bio toilets, and allied products for construction and Industrial applications that meet customer requirements. The Company got into the high potential sector of wastewater recycling in 2021. The company has taken over the running business of its promoter

EPBL focuses on giving sanitation solutions to those who do not have access to toilets and those who have toilets but face trouble treating and managing the waste through septic tanks. The company provides sanitation infrastructure and human waste management solutions and services, involving innovative and simple bio-digester technology licensed from the Defence Research and Development Organization (DRDO) and Industry Interface and Technology Management, operating under the aegis of DRDO, Ministry of Defence, Government of India. 

The anaerobic bio-digester technology helps users manage waste onsite, without depending on expensive and energy-consuming sewage infrastructure. The Sewage Treatment Plant enables contaminant concentrations to be lowered to a safe level before wastewater can be reused or returned to the environment. The effluent water treatment - is a technique used for processing industrial wastewater for reuse or safe discharge to the environment. The company also specializes in FRP allied products. FRP is an eco-friendly substitute for wood that has long been the chosen building
material - a limited resource that has resulted in major environmental problems, such as fast forest decline.

The group has supplied more than 2, 00,000 doors thereby saving thousands of trees, and has supplied more than 2,500 Bio toilets to households helping in the reduction of open defecation thereby contributing to clean and green surroundings. As of March 31, 2022, it had 30 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for a long-term lease deposit for a manufacturing facility (Rs. 2.00 cr.), part repayment of loans (Rs. 0.80 cr.), working capital (Rs. 1.51 cr.), and general corporate purposes (Rs. 1.49 cr.), EPBL is coming out with a maiden IPO of 504000 equity shares of Rs. 10 each at a fixed price of Rs. 126 per share to mobilize Rs. 6.35 cr. The issue opens for subscription on August 29, 2022, and will close on September 05, 2022. Minimum application is to be made for 1000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 30.02% of the post-issue paid-up capital of the company. EPBL is spending Rs. 0.55 cr. for this IPO process. 

The issue is solely lead managed by Aryaman Financial Services Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Aryaman Group company Aryaman Capital Markets Ltd. is the market maker for this company. 

Having issued entire equity at par so far, the company also issued bonus shares in the ratio of 13 shares for every 2 shares held in September 2021. The average cost of acquisition of shares by the promoters is Rs. 7.24 and Rs. 7.88 per share. 

Post issue, EPBL's current paid-up equity capital of Rs. 1.18 cr. will stand enhanced to Rs. 1.68 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 21.19 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, for the last three fiscals, EPBL has reported turnover/net profits of Rs. 0.57 cr. / Rs. 0.03 cr. (FY20), Rs. 2.95 cr. / Rs. 0.36 cr. (FY21) and Rs. 8.08 cr. / Rs. 0.81 cr. (FY22).

For the last three fiscals, EPBL has posted an average EPS of Rs. 7.17 and an average RoNW of 69.55%. The issue is priced at a P/BV of 7.42 based on its NAV of Rs. 16.97 as of March 31, 2022, and at a P/BV of 2.54 based on its post-IPO NAV of Rs. 49.65 per share.   

If we attribute FY22 earnings to post IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 26.20. Thus the issue is aggressively priced. 

DIVIDEND POLICY: 
The company has not declared any dividend since its inception. It will adopt a prudent dividend policy post listing, based on its financial performance and prospects. 

COMPARISON WITH LISTED PEERS:
As per offer documents, EPBL has no listed peers to compare with. Aryaman Financial brought one IPO called Banka Bioloo Ltd. in February 2018, which could have been the nearest peer for EPBL.

MERCHANT BANKER'S TRACK RECORD:
This is the 14TH mandate from Aryaman Financial in the last three fiscals (including the ongoing one). Out of the last 10 listings, all opened with premiums ranging from 0.02% to 5% on the day of listing. Thus it has an average track record.