Euro Panel NSE SME IPO review (Avoid)

•    EPPL changed its business model from trading to manufacturing aluminium panels.
•    Its financial data is erratic with super-profits in Q1 of FY22.
•    Latest performance appears to be window dressed to hike valuations.
•    There is no harm in giving this issue a MISS.

ABOUT COMPANY:
Euro Panel Products Ltd. (EPPL) started as a trade under the name and style of Archer Trading House Pvt. Ltd. and subsequently in 2015 ventured into manufacturing of aluminium composite panel and also changed its name as Euro Panel Products Pvt. Ltd. in 2014 and converted it into a public limited company in September 2021. 

Currently, it manufactures varieties of ACPs in different colours, designs and textures to cater for the varied needs of customers. To achieve the optimum utilization of resources, it has adopted the Kaizen strategy. Kaizen strategy is an approach to create continuous improvement, where employees at all levels of a Company work together proactively to achieve commitments, incremental improvements to the manufacturing process. It operates on a B2B and B2C business model. As of October 31, 2021, it had overall 317 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 22.34 cr.), repayment/prepayment of certain borrowings (Rs. 9.04 cr.) and general corporate purpose funds (Rs. 11.29 cr.), EPPL is coming out with a maiden IPO of 6500000 equity shares of Rs. 10 each at a fixed price of Rs. 70 per share to mobilize Rs. 45.15 cr. The issue opens for subscription on December 14, 2021, and will close on December 16, 2021. Minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.53% of the post issue paid-up capital of the company. EPPL will be spending Rs. 2.48 cr. for the entire IPO process. 

The issue is solely lead managed by Fedex Securities Pvt. Ltd., and Link Intime India Pvt. Ltd. is the registrar to the issue. Rikhav Securities Ltd. will be the market maker for this IPO. The company has reserved 500000 shares for eligible employees and offering them a discount of Rs.7 per share. 

Having issued initial equity at par, the company issued further equity at Rs. 16 per share between July 2018 to January 2020. The average cost of acquisition of shares by the promoters is Rs. 10.00 and Rs. 12.19 per share. 

Post IPO, EPPL's current paid-up equity capital of Rs. 18.00 cr. will rise to Rs. 24.50 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 171.50 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last fiscal, EPPL has posted turnover/net profits of Rs. 108.67 cr. / Rs. 3.94 cr. (FY19), Rs. 142.99 cr. / Rs. 3.97 cr. (FY20) and Rs. 143.30 cr. / Rs. 3.70 cr. (FY21). For the first three months of the FY22 ended on June 30, 2021, it has earned a net profit of Rs. 1.88 cr. on a turnover of Rs. 31.91 cr. On comparative ratios, Q1 of FY22 has marked declining trends but bottom line overshoots manyfold and raises eyebrows. 

For the last three fiscals, it has posted an average EPS of Rs. 2.44 and an average RoNW of 15.42%. The issue is priced at a P/BV of 3.61 based on its NAV of Rs. 19.38 as of June 30, 2021, and at a P/BV of 2.19 based on its post-issue NAV of Rs. 31.90 per share. 

If we annualize FY22 earnings and attribute it to fully diluted post issue equity, then the asking price is at a P/E of 22.80 and based on FY21 earnings, P/E stands at 46.35. Thus the issue is priced aggressively. 

COMPARISON WITH LISTED PEERS:
As per the offer documents, the company has no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
On the merchant banker's front, this is the 14th mandate from its stable in the last four fiscals (including the ongoing one). Out of the last 10 listings, 1 opened at discount 1 at par and the rest with a premium ranging from 0.08% to 16.67% on the day of listing. Thus the Lead Manager has an average track record.