Indo US Bio-Tech BSE SME IPO review (May apply)

Indo US Bio-Tech Ltd. (IUBL) that started its journey way back in 2004 as a seed testing unit and trading in seeds in Nagpur, Hyderabad and Gujarat started in-house R&D as backward integration and currently producing variety of seeds like oil seeds, pulses seeds, vegetable seeds, spices seeds and cereals seeds. At present our company is having collection of around 4460 varieties of germplasm in various crops. Its products are being marketed under various brands names like INDO-US 955, INDO-US 936, INDO-US 927 etc. It is 9001:2015 certified engaged in research plant, breeding products, processing and marketing of sales high performing open pollinated and hybrid agricultural seed varieties. IUBL is a recognized seed importer from National Seeds Corporation Limited.

To part finance its working capital and general corpus fund needs,  IUBL is coming out with a maiden IPO of 1430000 equity shares of Rs. 10 each at a fixed price of Rs. 51 per share to mobilize Rs. 7.29 crore. Issue opens for subscription on 30.04.18 and will close on 03.05.18. Minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. Issue constitutes 29.46% of post issue paid up capital of the company. Issue is solely lead managed by Swastika Investmart Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Since incorporation till March 2015 it raised equity at par and has issued bonus shares in the ratio of 1.3 for 1 share held in December 2017. Average cost of acquisition of shares by the promoters is Rs. 4.48 per share. Post issue, its current paid up equity capital of Rs. 3.42 cr. will stand enhanced to Rs. 4.85 cr.

On performance front, IUBL has posted turnover/net profits of Rs. 14.86 cr. / Rs.0.26 cr. (FY14), Rs. 19.66 cr. / Rs. 0.50 cr. (FY15), Rs. 19.15 cr. / Rs. 0.36 cr. (FY16) and Rs. 24.58 cr. / Rs. 0.65 cr. (FY17). It suffered a setback in bottom line for FY16. For first seven months of the FY18 it has earned net profit of Rs. 0.74 cr. on a turnover of Rs. 15.89 cr. Thus FY17and FY18 data appears to have been window dressed for IPO process. For last three fiscals it has posted an average EPS of Rs. 1.57 and an average RoNW of 14.89%. Issue is priced at a P/BV of 3.77 based on its NAV of Rs. 13.53 as on 31.10.17 and at a P/BV of 2.08 on the basis of post issue NAV of Rs. 24.56. If we annualize latest earnings and attribute it on fully diluted equity post issue then asking price is at a P/E of 19 plus. As per offer documents, it is considering Mangalam Seeds, Kaveri Seeds and Nath Bio as its listed peers that are trading at a P/Es of 36, 27 and 39 respectively (as on 19.04.18). In fact based on FY17 earnings it is priced at a P/E of 38 and first seven months super profits raises doubt about its sustainability. Based on FY 17 earnings it is highly priced, but based on FY18 annualized earnings it is priced at a P/E of 19 thus looks reasonable. However, Last result raises eyebrows with super margins which are very unlikely to sustain considering its past track records.

On merchant banker’s front, this is the 14th mandate from its stable in last three fiscals. Out of last 10 listings, 2 opened at discount to offer price and the rest with a premium ranging from 2.8% to 20% on the day of listing.