Goel Food BSE SME IPO review (Avoid)

•    GFPL is in hospitality/snacks and sweet outlets and banquets-related business.
•    It has posted super profits in a pre-IPO year raising eyebrows.
•    The company operates in a highly competitive and fragmented segment. 
•    Small equity post IPO indicates longer gestation for migration.
•    There is no harm in skipping this fully priced (based on super earning) offer.

ABOUT COMPANY:
Goel Food Products Ltd. (GFPL) which started primarily as Indian Snacks and Sweets Manufacturing company is currently operating only in Kolkata with eight Banquets Hall, two sweet shops, one hotel and one guest house. It operates an entire portfolio of banquets and sweet shops hotels etc. under the brand name "Bika". The company has rented out its hotel properties. 

Currently, the company is operating its 4 Banquets Hall, 1 hotel, 1 guest house and 1 sweet shop on rental properties. 

As of the date of filing this offer document, it had approximately 41 employees. It has plans to expand its operations on a national level going forward. The company is operating in a highly competitive and fragmented segment. 

 ISSUE DETAILS/CAPITAL HISTORY: 
To part finance its needs for working capital (Rs. 2.55 cr.), general corporate purposes (Rs. 0.83 cr.), GFPL is coming out with a maiden combo IPO of 1001600 equity shares of Rs. 10 each at a fixed price of Rs. 72 per share to mobilize Rs. 7.21 cr. The company will be issuing fresh equity shares worth Rs. 3.61 cr. (500800 shares) and an offer for sale of Rs. 3.60 cr. (500800 shares). The issue opens for subscription on June 15, 2022, and will close on June 20, 2022. Minimum application is to be made for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. 

The issue constitutes 26.56% of the post-issue paid-up equity capital of the company. GFPL is spending Rs. 0.40 cr. for the IPO process. 

The issue is solely lead managed by Gretex Corporate Services Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Gretex Share Broking Pvt. Ltd. is the market maker for this company. 

Having issued initial equity at par, GFPL issued further equity in the price range of Rs. 50 - Rs. 100 between December 2007 and March 2012. It has also issued bonus shares in the ratio of 3 for 1 in February 2022. The average cost of acquisition of shares by the promoters is Rs. 1.71 and Rs. 2.50 per share. 

Post-IPO, GFPL's current paid-up equity capital of Rs. 3.27 cr. will stand enhanced to Rs. 3.77 cr. Based on the IPO price, the company is looking for a market cap of Rs. 27.15 cr.

FINANCIAL PERFORMANCE: 
On the financial performance front, for the last three fiscals, GFPL has posted turnover/net profits (loss) of Rs. 13.87 cr. / Rs. 1.48 cr. (FY19), Rs. 16.07 cr. / Rs. 0.63 cr. (FY20) and Rs. 7.54 cr. / Rs. - (0.01) cr. (FY21).  For the first nine months of FY22 ended on December 31, 2021, it has earned a net profit of Rs. 1.88 cr. on a turnover of Rs. 12.01 cr. The sudden boost in the top and bottom lines in the pre-IPO year raises eyebrows and concern over sustainability. 

For the last three fiscals, the company has reported an average EPS of Rs. 1.39 and an average RoNW of 6.07%. The issue is priced at a P/BV of 2.50 based on its NAV of Rs. 28.79 as of December 31, 2021, and at a P/BV of 2.13 based on its post-IPO NAV of Rs. 33.88.

If we annualize FY22 super earnings and attribute it to post IPO fully diluted equity, then the asking price is at a P/E of 10.84 making it a fully priced offer. 

COMPARISON WITH LISTED PEERS:
As per the offer document, GFPL has shown TGB Banquets and EIH Ltd. as its listed peers. They are currently trading at a P/E of 00 and 00 (as of June 10, 2022). However, they are not truly comparable on an apple-to-apple basis. Its comparison with EIH as a peer is raising eyebrows.

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

MERCHANT BANKER'S TRACK RECORD:
This is the 9th mandate from Gretex Corporate in the last four fiscals (including the ongoing one). Out of the last 8 listings, 2 opened at discount and the rest with premiums ranging from 0.05% to 21.90% on the day of listings. It has an average track record.