HindPrakash Ind NSE SME IPO review (May apply)

• HIL is in dyes, auxiliaries and speciality chemical business.
• It has posted a sudden boost in top line in Pre-IPO/IPO years.
• The segment is witnessing cut-throat competition.
• The issue appears fully priced with offer price at a P/E of 11.7.

ABOUT COMPANY

Hindprakash Industries Ltd. (HIL) is engaged in the manufacturing and trading of Dyes, Auxiliaries, Intermediates and Chemicals. It started manufacturing unit in the year 2008 to produce Disperse Dyes, Reactive Dyes and Textile auxiliaries for catering the needs of the domestic textile industry. The Company has achieved steady growth in productivity and has expanded its range of products from dyes to auxiliaries to speciality chemicals.

With a wide range of products, HIL caters to various industries viz. Dyestuff and Dye intermediates, Textiles, Construction Chemicals, Speciality Chemicals etc. The company markets its products under the brand name 'HINDACTIVE'.

ISSUE DETAILS/CAPITAL HISTORY

To part finance its needs for working capital (Rs 8.22 cr.) and general corpus fund (Rs 2.70 cr.) HIL is coming out with a maiden IPO of 2880000 equity shares of Rs 10 each at a fixed price of Rs 40 per share to mobilize Rs 11.52 cr. The issue opens for subscription on 15.01.20 and will close on 17.01.20. The minimum application is to be made for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 27.63% of the post issue paid-up capital of the company. HIL is spending Rs 0.60 cr. for the entire proceeds of this IPO.

The issue is solely lead managed by Hem Securities Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Hem Finlease Pvt. Ltd. is the market maker for this issue. Having issued initial equity at par, HIL issued further equity at Rs 27.50 in March 2013 and March 2014. It has issued bonus shares in the ratio of 5 shares for every 2 shares held in November 2018.

The average cost of acquisition of shares by the promoters is Rs 5.05, Rs 9.49 and Rs.22 per share. Post issue, HIL's paid-up capital will stand enhanced from Rs 7.54 cr. to Rs 10.42 cr. Thus the company mulls market capitalization of Rs 41.70 cr.

FINANCIAL PERFORMANCE

For the last three fiscals, HIL has posted turnover/net profits of Rs 86.12 cr. / Rs 2.14 cr. (FY17), Rs 87.48 cr. / Rs 2.32 cr. (FY18) and Rs 97.99 cr. / Rs 2.83 cr. (FY19). For H1 of FY20, it has clocked in the net profit of Rs 1.78 cr. on a turnover of Rs 50.64 cr. HIL's top line has shown a sudden jump in a pre-IPO year. Its revenue mix for the last three fiscals consists of 80% from manufacturing activities and 20% from trading (on an average basis). For H1 of FY20, this mix is 95% and 5% respectively.

For the last three fiscals, HIL has posted an average EPS of Rs 3.38 and an average RoNW of 14.38%. The issue is priced at a P/BV of 1.42 based on its NAV of Rs 28.15 as on 30.09.19 and at a P/BV of 1.27 based on post-IPO NAV of Rs 31.42. HIL has paid 0.50% token dividends for the last three years.

If we annualize FY20 H1 earnings and attribute it to post issue paid-up equity capital then asking price is at a P/E of 11.7 against the industry average of 13. Thus issue appears fully priced.

Its debtors holding days have increased to 90 days from 67 days a year ago period that raises concern.

COMPARISION WITH LISTED PEERS

As per offer documents, HIL has shown Camex Ltd., Mahickra Chemicals and Shree Pushkar Chemicals as its listed peers. They are currently trading at a P/E of 8.33, 29.72 and 11.1 (as on 10.01.20). However, they are not strictly comparable.

MERCHANT BANKER'S TRACK RECORD

On merchant banker's front, this is the 26th mandate from its stable in the last three fiscals (including the ongoing). Out of the last 10 listings (excluding Gian Life which is yet to be listed), two issues opened at a discount, two at par and the rest with a premium ranging from 0.04% to 20% on the day of listings. Thus it has an average track record.