Kesar India BSE SME IPO review (Avoid)

•    KIL is in the highly competitive and fragmented sector of real estate developments.
•    After posting minuscule financial performance till FY21, it posted bumper results.
•    Based on this bumper performance, the issue is fully priced. 
•    Small equity base post IPO indicates longer gestation for migration to the mainboard.
•    There is no harm in skipping this fully priced IPO.

ABOUT COMPANY:
Kesar India Ltd. (KIL) - (erstwhile known as Kesar Impex (India) Pvt. Ltd.) is a flagship company of the "Kesar" group. It is engaged in undertaking real estate developments and constructions. It is primarily in the business of residential and commercial buildings and is also doing industrial-related constructions. 

KIL will be undertaking the development of land having a development potential of 2124654 sq. ft. at Nagpur. The company has certain land parcels located in Nagpur, Central India for future development. As of December 31, 2021, the total land reserves owned by the promoter, Company member of the promoter group and others is 123.70 lakh square feet out of these the Promoter group companies, Promoter and member of the Promoter group collectively owns a land reserve of approx. 53.55 lakhs square feet and the Company is in possession of a land area of 2.29 lakhs square feet and a balance of 67.86 lakhs square feet is held jointly between Promoters, members of the Promoter group and others. As of December 31, 2021, it had 23 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY: 
To part finance its needs for development expenses of its projects (Rs. 10.50 cr.), acquisition of land development rights (Rs. 1.50 cr.) and general corporate purposes (Rs. 2.31 cr.), KIL is coming out with a maiden IPO of 930400 equity shares of Rs. 10 each at a fixed price of Rs. 170 per share to mobilize Rs. 15.82 cr. The issue opens for subscription on June 30, 2022, and will close on July 04, 2022. Minimum application is to be made for 800 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.35% of the post-IPO paid-up capital of the company. KIL is spending Rs. 1.51 cr. for this IPO process.  This indicates funding arrangements arrived at for the IPO. 

The issue is jointly lead managed by Fedex Securities Pvt. Ltd. and Hem Securities Ltd. and KFin Technologies Ltd. is the registrar to the issue. Hem Finlease Pvt. Ltd. is the market maker for this IPO. 

Having issued initial equity at par, KIL raised further equity capital at Rs. 100 per share in March 2009. It has also issued bonus shares in the ratio of 99 for 1 in May 2022. The average cost of acquisition of shares by the promoters is Rs. 12.50 per share. 

Post-IPO, KIL's current paid-up equity capital of Rs. 2.60 cr. will stand increased to Rs. 3.53 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 60.02 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, for the last three fiscals, KIL posted turnover/net profits of Rs. 0.19 cr. / Rs. 0.01 cr. (FY19), Rs. 0.58 cr. / Rs. 0.01 cr. (FY20) and Rs. 1.20 cr. / Rs. 0.01 cr. (FY21). For the nine months of FY22 ended on December 31, 2021, it has earned a net profit of Rs. 3.25 cr. on a turnover of Rs. 6.96 cr. After a static bottom line on a gradually rising top line for FY19 to FY20, a quantum jump in the top and bottom lines for 9M-FY22 raises eyebrows. So far, the major income of the company is from the sale of plots.

For the last three fiscals, KIL has posted an average EPS of Rs. 0.75 and an average RoNW of - (2.47%). The issue is priced at a P/BV of 1.80 based on its NAV of Rs. 94.71 as of December 31, 2021, and at a P/BV of 3.15 based on its post-IPO NAV of Rs. 54.06 per share. 

If we annualize super earnings of 9M-FY22 and attribute it to post IPO fully diluted equity capital, then the asking price is at a P/E of around 13.87, while on the basis of FY21 earnings, it stands at 4250 P/E. With super earnings, the issue is fully priced. 

COMPARISON WITH LISTED PEERS:
As per the offer document, KIL has shown Shri Krishna Devcon, Citadel Realty, Macrotech Developers, Oberoi Realty and Godrej Properties as its listed peers. They are currently trading at a P/E of 21.46, 32.08, 42.93, 72.24 and 63.41 (as of June 27, 2022). Compare with Macrotech, Godrej, Oberoi is a bit surprising. However, they are not truly comparable on an apple-to-apple basis. 

DIVIDEND POLICY:
The company has not declared any dividend for the reported periods of the offer document. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

MERCHANT BANKER'S TRACK RECORD:
This is the 14th mandate from Fedex in the last four fiscals (including the ongoing one). Out of the last 10 listings, 3 opened at par and the rest with premiums ranging from 0.08% to 5% on the day of listings. It has an average track record. 

This is the 11th mandate from Hem Securities in the last three fiscals (including the ongoing one). Out of the last 10 listings, 1 opened at discount and the rest with premiums ranging from 0.24% to 114.94% on the day of listings.