Harshdeep Hortico BSE SME IPO review (May apply)

•    HHL is in the business of designing, developing, manufacturing and supplying of variety of pots and planters.
•    It is operating in a highly competitive and fragmented segment. 
•    For the reported periods, it marked growth in its top line, but witnessed pressure on margins.
•    Based on FY24 annualized earnings, the issue appears fully priced. 
•    Well-informed/cash surplus investors may park moderate fund for medium term. 

PREFACE:
We have yet another example of hush-hush filing of offer documents. Megatherm Induction and Harshdeep Hortico RHPs / IPO price band ads were filed with the IPO timeline from January 25, 2024 to January 30, 2024, but it remained modified to January 29, 2024 to January 31, 2024 for both and the dateline change ad was released in Business Standard dated January 23, 2024. Here no January 22, 2024 was involved, but still changed timeline has surprises one and all. This is how currently many LM works in a hurry and gives corrigendum. This definitely affects the reviewing and analysis reports. What is more, the LM website did not carry any documents on their website for both these IPOs till this morning. When they do not stick to compliances, how they will guide to their clients for adhering to such requirements? 

ABOUT COMPANY:
Harshdeep Hortico Ltd. (HHL) is primarily engaged in the business of designing, developing, manufacturing and supplying of various types of pots and planters like: plastic Indoor Planters, Outdoor Planters, Illuminated Planters, Decorative Planters, Roto Moulded Planters, Fiber Reinforced Plastic (FRP) Planters, Eco series Planters etc. along with related accessories like Garden Hose Pipe & Water Can.

Apart from this, recently it has also entered into the field of Roto Moulded Outdoor Furniture. The company was incorporated in December 2022. Prior to this, it was operational as a proprietorship firm.

The company has two manufacturing units, 1 at Bhiwandi, Thane and 1 at Boriaind, Daund, Pune (both in Maharashtra). It has three stores located in Delhi, Pune and Rajahmundry. It also has 4 exclusive distributors in Hyderabad, Kolkata, Chandigarh and Visakhapatnam. The company is also present on Omni-channel with its own website and various online marketplaces like Amazon, Flipkart and social media like Facebook, Instagram to market its products. Currently, it markets its products in 27 states and Union Territories.  Its major revenue comes from Maharashtra. The company also exports its products to neighboring countries. As of September 30, 2023, it had 125 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 4242000 equity shares of Rs. 10 each (worth Rs. 19.09 cr. at the upper cap). It has announced a price band of Rs. 42 - Rs. 45 per share. The issue opens for subscription on January 29, 2024, and will close on January 31, 2024. The minimum application to be made is for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.36% of the post-IPO paid-up capital of the company. From the net proceeds of the fresh equity issue, it will utilize Rs. 4.08 cr. for repayment/prepayment of certain borrowings, Rs. 9.00 cr. for working capital and the rest for general corporate purposes. 

The issue is solely lead managed by Hem Securities Ltd., and Link Intime India Pvt. Ltd. is the registrar of the issue. HEM group's Hem Finlease Pvt. Ltd. the market maker for the company. 

After issuing the initial equity capital at par, the company issued further equity shares at a price of Rs. 5801 per share in May 2023, and has also issued bonus shares in the ratio of 169 for 1 in November 2023. The average cost of acquisition of shares by the promoters is Rs. 8.87 per share.

Post-IPO, company's current paid-up equity capital of Rs. 11.85 cr. will stand enhanced to Rs. 16.09 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 72.42 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last fiscal, the company has posted a total income/net profit/ -(loss) of Rs. NIL cr. / Rs. - (0.01) cr. (FY23). For 4M of FY24 ended on July 31, 2024, it earns a net profit of Rs. 1.77 cr. on a total income of Rs. 14.83 cr. Thus it has just four months working to report post turning public limited entity.

As a proprietorship firm, for the last three fiscals, it has reported a total revenue/net profit of Rs. 25.19 cr. / Rs. 2.00 cr. (FY21), Rs. 34.86 cr. / Rs. 2.48 cr. (FY22), and Rs.40.77 cr. / Rs. 2.23 cr. (FY23). While it posted growth in its top line for these years, it marked pressure on margins. This is due to its operations in a highly competitive and fragmented segment.

For the last three fiscals, it has reported an average EPS of Rs. NIL, and an average RONW of 00%. The issue is priced at a P/BV of 4.02 based on its NAV of Rs. 11.19 as of July 31, 2023, and at a P/BV of 2.24 based on its post-IPO NAV of Rs. 20.10 per share (at the upper cap).

If we attribute annualized FY24 earnings to its post-IPO fully diluted paid-p capital, then the asking price is at a P/E of 13.64. Thus the issue appears fully priced. 

For the reported periods, the company has posted PAT margins of NIL (FY23), 11.97% (4M-FY24). 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. 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 no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
This is the 40th mandate from Hem Securities in the last three fiscals, out of the last 10 listings, all opened at premiums ranging from 8.57% to 125% on the date of listing.