Felix Industries NSE SME IPO review (Avoid)

Felix Industries Ltd. (FIL) is an environmental conservation company with a fundamental vision of “Recycle-Reuse-Recover-Reduce”. As the management of environmental issues are becoming increasingly important and complex in both rapidly developing and developed countries, circular economy are becoming critical issues and here FIL is playing an important role as a “value creator”. Company is providing service and technology for water and wastewater management services to municipal and industrial customers. FIL has tied up techno-alliance with GEA Engineering (a US based company) and currently has a portfolio of more than 450 proprietary technologies to tackle the challenges in managing water in all its forms.

To part finance its building and construction cost, procurement of machineries, furniture & fixtures, working capital and general corpus fund needs, FIL is coming out with a maiden IPO of 1368000 equity shares of Rs. 10 each at a fixed price of Rs. 35 per share to mobilize Rs. 4.79 crore. Issue opens for subscription on 23.11.17 and will close on 27.11.17. Minimum application is to be made for 4000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. Issue is solely lead managed by Monarch Networth Capital Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Issue constitutes 26.86% of the post issue paid up capital of the company. It has issued equity at par so far and has also issued bonus shares in the ratio of 7 shares for every 10 shares held in September 2016. Post issue, its current paid up equity capital of Rs. 3.72 crore will stand enhanced to Rs. 5.09 crore.

On performance front, FIL has posted turnover/net profits of Rs. 4.13 cr. / Rs. 0.05 cr. (FY14), Rs. 2.92 cr. / Rs. 0.04 cr. (FY15), Rs. 3.29 cr. / Rs. 0.11 cr. (FY16) and Rs. 5.19 cr. / Rs. 0.17 cr. (FY17). For first seven months period ended on 31.10.17 of the current fiscal, it has posted net profit of Rs. 0.23 crore on a turnover of Rs. 3.46 crore. Thus while top line has shown inconsistency, bottom line has shown northward march. First seven months performance is rather surprising. For last two fiscals, it has posted an average EPS of Rs. 2.81 and average RoNW of 14.47%. Issue is priced at a P/BV of 3.19 on the basis of NAV as on 31.10.17. If we annualize latest earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 45 against peers trading at a P/E ranging from 22 to 50. Thus issue is aggressively priced.

On merchant banker’s front, this is the 5th mandate from its stable since 2012-13 and out of last 4 listings 1 opened at par, two with a premium ranging from 4 to 5% and one at 45% premium on the day of listing.

Conclusion: Considering aggressive pricing of the issue and non-encouraging performance so far, there is no harm in giving this issue a miss. (Avoid).