Jay Kailash BSE SME IPO review (Avoid)

•    The company is engaged in the business of manufacturing and marketing of packaged Indian snacks.
•    It has a portfolio of 56 products with 186 SKUs.
•    It posted inconsistency in its top and bottom lines for the reported periods. 
•    Based on FY24 annualized earnings, the issue is exorbitantly priced. 
•    There is no harm in skipping this pricey bet. 

ABOUT COMPANY:
Jay Kailash Namkeen Ltd. (JKNL) is engaged in the business of manufacturing of packaged Indian snacks. Its range of Indian snacks includes Chana Jor Namkeen, Masala Chana Jor, Pudina Chana, Masala Mung Jor, Plain Mung Jor, Soya Sticks, Haldi Chanas, Chana dal, Sev Murmura & Garlic Sev Murmura, Bhavnagari Gathiya, Chana Dal, Sing Bhujia, Popcorn, Roasted Peanuts, etc. The company has 186 SKUs of its 56 products having retail and wholesale packs. 

Its diversified product portfolio is therefore, relatively less susceptible to shifts in consumer preferences, market trends and risks of operating in a particular product segment. The Company was initially engaged in B2B business wherein it manufactured products in bulk quantities for other well recognised companies/brands in same industry. It manufactures products and supplies in the states of Assam, Bihar, Chhattisgarh, Gujarat, Madhya Pradesh, Maharashtra, Odisha, Rajasthan, Telangana and Uttar Pradesh. However, from April 2022 onwards it has also started B2C business along with existing B2B business under own brand name "Jay Kailash". It is also into wholesale trade of Chana Jor namkeen.

The company has production capacity of 10 tonnes per working day at manufacturing facility. However, its capacity utilization is very low (average 32% for FY22, FY23 and 8M-FY24). As of November 30, 2023, it had 14 employees on its payroll and a force of 35 on demand labourers for production and dispatch. It also has 6 personnel for marketing.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 1633600 equity shares of Rs. 10 each to mobilize Rs. 11.93 cr. at the upper cap. It has announced a price band of Rs. 70 - Rs. 73 per share. The issue opens for subscription on March 28, 2024, and will close on April 03, 2024. The minimum application to be made is for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 32.69% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 7.00 cr. for working capital, and the rest for general corporate purposes.

The issue is solely lead managed by Expert Global Consultants Pvt. Ltd., and Skyline Financial Services Pvt. Ltd. is the registrar of the issue. Rikhav Securities Ltd. is the market maker for the company. 

Having issued initial equity capital at par, the company issued/converted further equity shares in the price range of Rs. 42.51 - Rs. 550 between May 2022 and May 2023. It has also issued bonus shares in the ratio of 43 for 1 in June 2022 and 1 for 3 in January 2023. The average cost of acquisition of shares by the promoters is Rs. 0.17, Rs. 12.04 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 3.36 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. 36.48 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total revenue/net profit of Rs. 13.15 cr. / Rs. 0.09 cr. (FY21), Rs. 3.17 c/ Rs. 0.05 cr. (3M-FY22), Rs. 7.26 cr. / Rs.0.49 cr. (9M-FY22). Rs. 9.88 cr. / Rs. 0.89 cr. (FY23). For 8M of FY24 ended on November 30, 2023, it earned a net profit of Rs. 0.41 cr. on a total revenue of Rs. 6.46 cr.   

For the last three fiscals, it has reported an average EPS of Rs. 2.66, and an average RONW of 53.97%. The issue is priced at a P/BV of 4.14 based on its NAV of Rs. 17.62 as of November 30, 2023. The IPO price band ad is missing its post-IPO NAV data on the lower and 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 60.33. Thus the IPO is exorbitantly priced. 

For the reported periods, the company has posted PAT margins of 0.67% (FY21), 1.62% (3M-FY22), 6.81% (9M-FY22), 9.06% (FY23), 6.32% (8M-FY24) and RoCE margins of 25.94%, 12.06%, 139.51%, 31.91%, 11.10%, respectively for the referred periods. KPI data differs as seen on P 89, 90, and P115.

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 Annapurna Swadisht and Prataap Snacks as their listed peers. They are trading at a P/E of 64.0 and 114.0 (as of March 22, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 7th mandate from Expert Global in the last two fiscals, out of the last 6 listings, 1 opened at discount, 1 at par and the rest with premiums ranging from 10.47% to 90% on the day of listing.