Ideal Techno NSE SME IPO review (May apply)

•    The company is engaged in manufacturing and marketing of rigid plastic packaging materials.
•    After static financial performances for FY21 and FY22, it posted boosted performance.
•    Quantum jump in top and bottom lines for 11M-FY24 raise eyebrows and concern over its sustainability.
•    Based on FY24 annualized super earnings, relatively the issue appears fully priced. 
•    Well-informed investors may park moderate fund for medium to long term.

ABOUT COMPANY:
Ideal Technoplast Industries Ltd. (ITIL) is a manufacturer and supplier of rigid plastic packaging, with a presence in both domestic and international markets (indirectly through export houses and third parties). It provides industrial packaging solutions for sectors such as paints, agro, chemicals, cosmetics, adhesives, lubricants, food, and edible oil. 

The company employs In-Mould Labelling (IML) via robotic automation that enhances its output capacity. Additionally, it has specialized units for production, R&D, quality control, and automated screen printing. ITIL's quality testing procedures cover everything from raw material sourcing to the final product, including weight checks, drop tests, finishing evaluations, and leak tests.

The company offers a range of rigid plastic packaging solutions with advanced manufacturing technologies, including In-House Design & Printing Technology. It specializes in manufacturing square packaging containers known for their ruggedness, durability, and ease of handling heavy items. The technology used for manufacturing these containers includes fully automatic machines with robotic arms, reducing human intervention throughout the manufacturing process. These machines feature in-mould labelling technology and Heat Transfer Mould Labeling Technology, allowing direct printing on the containers instead of applying labels. This ensures standardized finished products and maintains desired quality while increasing production efficiency. Its specialization in square container manufacturing is supported by custom-designed moulds tailored to meet customer requirements. As of March 31, 2024, lit had 28 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 1325000 equity shares of Rs. 10 each at a fixed price of Rs. 121 per share to mobilize Rs. 16.03 cr. The issue opens for subscription on August 21, 2024, and will close on August 23, 2024. The minimum application to be made is for 1000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on MSE SME Emerge. The issue constitutes 26.50% of the post-IPO paid-up capital of the company. The company is spending Rs. 1.60 cr. for this IPO process, and from the net proceeds, it will utilize Rs. 13.63 cr. for capital expenditure, and Rs. 0.80 cr. for general corporate purposes. 

The issue is solely lead managed by Swastika Investmart Ltd., and Bigshare Services Pvt. Ltd. is the registrar to the issue. Sunflower Broking Pvt. Ltd. is the market maker for the company. 

The company has issued entire initial equity shares at par value so far. The average cost of acquisition of shares by the promoters is Rs. 10.00 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 3.68 cr. will stand enhanced to Rs. 5.00 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 60.50 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 5.70 cr. / Rs. 0.10 cr. (FY21), Rs. 5.68 / Rs. 0.11 cr. (FY22), Rs. 12.00 cr. / Rs. 0.51 cr. (FY23) For the two broken periods of M-11 - FY24 till 29.02.24 (01.04.23 to 22.11.23 + 23.11.23 to 29.02.24) Rs. 24.25 cr. / Rs. 3.27 cr. (FY24). Thus the quantum jump in earnings for FY24-11M raised eyebrows and concern over its sustainability going forward.

For the last three fiscals, it has reported an average EPS of Rs. 2.18, and an average RoNW of 17.25%. The issue is priced at a P/BV of 5.98 based on its NAV of Rs. 20.22 as of February 29, 2024, and at a P/BV of 2.58 based on its post-IPO NAV of Rs. 46.93 per share. 

If we attribute FY24 super annualized earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 16.97, and based on FY23 earnings, the P/E stands at 119.80. 

For the reported periods, the company has posted PAT margins of 1.72% (FY21), 1.85% (FY22), 4.22% (FY23), 13.47% (11M - FY24), and RoCE margins of 10.20%, 9.05%, 12.09%, 32.95% 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 Mold-Tek Packaging, Time Techno, and TPL Plastech as their listed peers. They are trading at a P/E of 40.5, 26.2 and 41.2 (as of August 16, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 10th mandate from Swastika Invest in the last three fiscals (including the ongoing one), out of the last 9 listings, 1 opened at discount, and the rest listed with premiums ranging from 4.17% to 110.64% on the date of listing.