Indobell Insulation BSE SME IPO review (Avoid)

•    The company is manufacturer and contractor of insulation products that are tailor made as per the needs of the customers and also provides all related services in the segment.
•    Boosted top and bottom lines for pre-IPO year i.e. FY23 and FY24 appears to be a window dressing to fetch fancy valuations.
•    Based on FY25 annualized earnings, the issue appears aggressively priced.
•    There is no harm in skipping this pricey offer.

ABOUT COMPANY:
Indobell Insulations Ltd. (IIL) is a Manufacturer and Contractor of Insulation Products like Nodulated/Granulated Wool (Mineral and Ceramic Fibre Nodules) and Prefabrication Thermal Insulation Jackets which are used to insulate a variety of applications, including homes, commercial buildings, and industrial plants and all other related insulations materials which are the parts of the designs of insulations of the Company. Core business is carried out in power industry which requires full range of insulation and lining Services, scaffolding, surface protection, refractory, passive fire protection and borosilicate lining in chimneys.

Its range of products under manufacturing capabilities include: • Nodulated/Granulated Wool which includes - Ceramic Fibres Nodules - Mineral Fibre Nodules, • Pre-fabricated Thermal Insulation Jackets.The company also provides consultancy, engineering, fabrication, material supply, Installation, supervision, and project management services. 

The primary source of revenue of the company is through the sales of the Insulations products manufactured i.e. Mineral Fibre Nodules, Ceramic Fiber Nodules and Thermal Insulation Jacket which is done in customized process according to the demand of the customer requirements which consists 61.23% of its total revenue from operation for Fiscal 2024. The company offers tailored insulation solutions to meet specific customer requirements. This includes providing customized sizes, shapes, and densities of insulation materials based on the client's projects which include 3D design, 2D designs, manufacturing drawings, and doing a Thermal analysis of the insulation. 

Apart from this, it also offers installation services to clients who prefer a one-stop solution for their insulation needs. The company also fulfils overseas requirements of the Customers by exporting tailor-made Jackets which are designed as per the Customer's specifications. As on March 31, 2024, its export turnover was 33.71% of total revenue from operation of the company. The company is also trying to explore more opportunities of getting more clients who require Insulations from time to time. As of the date of filing this prospectus, it had 31 employees on its payroll, and it hires casual workers as and when required. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 2205000 equity shares of Rs. 10 each at a fixed price of Rs. 46 per share to mobilize Rs. 10.14 cr. The issue opens for subscription on January 06, 2025, and will close on January 08, 2025. The minimum number of shares to be applied is for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 35.00% of the post-IPO paid-up capital of the company. The company is spending Rs. 1.28 cr. for this IPO process, and from the net proceeds of the IPO, it will utilize Rs. 7.76 cr. for working capital, Rs. 0.41 cr. for capex for additional plant and machinery, and Rs. 0.70 cr. for general corporate purposes

The IPO is solely lead managed by Finshore Management Services Ltd., and Integrated Registry Management Services Pvt. Ltd., is the registrar to the issue. Black Fox Financial Pvt. Ltd. is the market maker for the company. 

The company has issued entire equity shares capital at par value so far. It also issued bonus shares in the ratio of 4 for 5 in March 2006, 3 for 1 in August 2012, and 5 for 1 in December 2023. The average cost of acquisition of shares by the promoters is Rs. 0.11, Rs. 0.31, and Rs. 0.32 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 4.10 cr. will stand enhanced to Rs. 6.30 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 28.98 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 9.77 cr. / Rs. 0.15 cr. (FY22), Rs. 21.05 cr. / Rs. 0.90 cr. (FY23), and Rs. 17.99 cr. / Rs. 1.03 cr. (FY24). For H1 of FY25 ended on September 30, 2024, it earned a net profit of Rs. 0.42 cr. on a total income of Rs. 5.56 cr. While the company posted inconsistency in its top lines, it marked boosted profits for FY23 and FY24 that raise eyebrows.

For the last three fiscals, the company has reported an average EPS of Rs. 2.06 and an average RoNW of 16.11%. The issue is priced at a P/BV of 3.09 based on its NAV of Rs. 14.88 as of September 30, 2024, and at a P/BV of 1.79 based on its post-IPO NAV of Rs. 25.77 per share.

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 33.82, and based on FY24 earnings, it stands at 28.05. The issue relatively appears aggressively priced.

For the reported periods, the company has posted PAT margins of 1.57% (FY22), 4.28% (FY23), 5.74% (FY24), 7.62% (H1-FY25), but RoCE margins data is missing for the referred periods respectively. 

DIVIDEND POLICY:
The company has declared dividends of 10% for FY20 to FY22, 20% for FY23 and 0.3% for FY24. It will adopt a prudent dividend policy, based on its financial performance and future prospects. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Beardsell Ltd. as its listed peer. It is trading at a P/E of 19.7 (as of January 01, 2025). However, they are not truly comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORD:
This is the 29th mandate from Finshore Management in the last four fiscals, out of the last 10 listings 1 opened at discount, 1 at par and the rest listed with premiums ranging from 7.41% to 94.44% on the date of listing.