GSM Foils NSE SME IPO review (May apply)

•    The company is engaged in the business of blister foils and aluminium pharma foils.
•    It is operating in a highly competitive and fragmented segment. 
•    The company has posted inconsistency in its top and bottom lines. 
•    Based on FY24 annualized earnings, the issue appears fully priced. 
•    Well-informed investors may park moderate funds for the medium to long term. 

ABOUT COMPANY:
GSM Foils Ltd. (GFL) is engaged in the business of manufacturing Blister Foils and Aluminium Pharma Foils (also known as "Strip Foils") which is used in packing of pharmaceutical medicines which includes capsules and tablets both. This is a primary packaging material which comes in direct contact with the medicine, hence, utmost care is taken with regards to its quality. Over the past few years, it has acquired definite know how in different types of foils used in pharmaceuticals companies. It offers Aluminium foils in different sizes, shapes and thickness to meet diverse needs of clients. 

The range of GFL's products includes plain and printed aluminium foils and strip foils along with alum base foils and it ranges from 0.020/ 0.025/ 0.030/ 0.040 micron for coated /ploy laminated/ blister/ strip printed foils. Aluminium Foil or Strip Foils are one of the packaging options for highly sensitive pharmaceutical products that protects the medicines from oxygen, moisture, and other environmental influences. These foils are used in packaging of capsules which requires more bursting strength as they are bigger in size and is used to create a push-through closure with lid film where tablets and capsules are protected perfectly and hygienically.

Blister Foils are commonly used as unit-dose packaging for pharmaceutical tablets. Blister foils are suitable for hard packing of medical and pharmaceutical products. It is heat seal coated on the bright side and print-treat coated on the matte side, the primary component of blister packs is made from "Formable" web, either plastic or aluminium, the formed cavity or pocket contains the product and the "lidding" seals the product in the package.

The company has PAN India presence with clientele base in 13 states and 1 Union territory for domestic market based on sales as of December 31, 2023. As of February 28, 2024 it had 39 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 3440000 equity shares of Rs. 10 each at a fixed price of Rs. 32 per share to mobilize Rs. 11.01 cr. The issue opens for subscription on May 24, 2024, and will close on May 28, 2024. The minimum application to be made is for 4000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.85% of the post-IPO paid-up capital of the company. The company is spending Rs. 0.62 cr. for this IPO process, and from the net proceeds, it will utilize Rs. 1.11 cr. for capex towards purchase of plant and machineries, Rs. 7.06 cr. for working capital, and Rs. 2.22cr. for general corporate purposes. 

The issue is solely lead managed by Shreni shares Ltd., and Bigshare Services Pvt. Ltd. is the registrar of the issue. Shreni Shares Ltd. is also the market maker for the company. 

Having issued initial equity capital at par the company issued further equity shares at a fixed price of Rs. 250 per share in February 2024, and has also issued bonus shares in the ratio of 22 for 1 in March 2024. The average cost of acquisition of shares by the promoters is Rs. 10.28, and Rs. 10.33 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 9.37 cr. will stand enhanced to Rs. 12.81 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 41.00 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 35.95 cr. / Rs. 0.34 cr. (FY21), Rs. 71.85 cr. / Rs. 0.64 cr. (FY22), and Rs. 65.89 cr. / Rs. 1.43 cr. (FY23). Thus for FY23 though it marked degrowth for topline, its bottom line surged and raised eyebrows. For two broken periods of FY24 (3M ended on 30.06.23) + (6M ended on 31.12.23), the company earned a net profit of Rs. 1.75 on a total income of Rs. 38.10 cr. Thus there is inconsistency in its top and bottom lines.

For the last three fiscals, it has reported an average EPS of Rs. 1.26, and an average RoNW of 12.74%. The issue is priced at a P/BV of 1.25 based on its NAV of Rs. 25.10 as of December 31, 2023, and at a P/BV of 1.93 based on its post-IPO NAV of Rs. 16.62 per share.

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 17.58. Thus the issue appears fully priced. 

For the reported periods, the company has posted PAT margins of 0.93% (FY21), 0.89% (FY22), 2.17% (FY23), 4.57% (3M-FY24), 4.59% (+6M-FY24), and RoCE margins of 0.11%, 0.20%, 0.34%, 0.09%, 1.60% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends since incorporation. 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 Synthiko Foils, and MMP Ind., as their listed peers. They are trading at a P/E of 59.6, and 24.8 (as of May 17, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 27th mandate from Shreni Shares in the last three fiscals (including the ongoing one), out of the last 10 listings, all listed with premiums ranging from 7.5%% to 141.94% on the date of listing.