Kotyark Ind NSE SME IPO review (May apply)

•    KIL is in the manufacturing and marketing of biofuels (Green energy).
•    Its capacity utilization is scaling up based on rising demands.
•    The company suffered a setback in FY20 in line with general trends.
•    Based on its financial parameters, the issue is aggressively priced.
•    Bio-fuel demand is rising and the company is poised for bright prospects ahead.

ABOUT COMPANY:
Kotyark Industries Ltd. (KIL) is primarily engaged in the manufacturing of BioFuel which is an alternative source of energy and has the ability to replace and a good substitute of traditional fossil fuels like coal, firewood, lignite, etc. The company is serving towards renewable green energy and sustainable development of renewable natural resources (Biofuels) through the adoption of environmentally friendly technology that favours the net reduction of greenhouse gas emissions for use in a vehicle for public and private transport as well as various equipment and Gen Sets.

Driven by experience in agriculture, innovation and investment in Research & Development, as biofuel is a substitute for the traditional fossil fuels and with the indiscriminate exploitation of all fossil fuels, KIL seemed to capitalize on the growing global demand for an alternate source of renewable energy and thus incorporated the company in the year 2016 for trading and manufacturing of Bio Fuel. Till 2019 May the company was primarily in the trading business of bio-fuels and later ventured into manufacturing of the bio-fuels of different variants. It has set mobile retail outlets to market its products. As of July 31, 2021, KIL had 23 employees on its payroll. 

KIL has received 25 licenses from Govt. of Rajasthan for dealers and the company has 17 such dealers as of July 31, 2021. It can go up to 250 licenses going forward. The increasing number of dealers has helped the company to scale up its capacity utilization. KIL's capacity utilization which was just 3.46% of the installed capacity has arisen to 12.30% in Q1 FY22. The management is confident of higher utilization of capacities with rising demand for this kind of green energy.

ISSUE DETAILS/CAPITAL HISTORY:
To meet its requirements for working capital (Rs. 8.30 cr.), general corporate funds (Rs. 2.36 cr.), KIL is coming out with a maiden IPO of 2208000 equity shares of Rs. 10 each at a fixed price of Rs. 51 per share to mobilize Rs. 11.26 cr. The issue opens for subscription on October 21, 2021, and will close on October 25, 2021. Minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge.  The issue constitutes 26.68x% of the post issue paid-up capital of the company. KIL is spending Rs. 0.60 cr. for this IPO process. 

The issue is solely lead managed by Beeline Broking Ltd. and KFin Technologies Pvt. Ltd. is the registrar to the issue. Sunflower Broking Pvt. Ltd. is acting as a market maker for this company. 

KIL issued/placed initial equity capital at par and then raised further equity at Rs. 40 per share in July 2021. It has also issued bonus shares in the ratio of 2 for 1 in July 2021. The average cost of acquisition of shares by the promoters is Rs. 6.89 per share.

Post issue, KIL's current paid-up equity capital of Rs. 6.07 cr. will stand enhanced to Rs. 8.27 cr. (8274900 shares). Based on the IPO pricing, the company is looking for a market cap of Rs. 42.20 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, KIL has posted turnover/net profits of Rs. 37.57 cr. / Rs. 0.58 cr. (FY19), Rs. 25.78 cr. / Rs. 0.49 cr. (FY20) and Rs. 65.29 cr. / Rs. 1.04 cr. (FY21). For the first four months ended on July 31, 2021, of FY22, it has reported a net profit of Rs. 0.52 cr. on a turnover of Rs. 28.11 cr. 

For the last three fiscals, for the last three fiscals, KIL has reported an average EPS of Rs. 2.70 and an average RoNW of 29.78%. The issue is priced at a P/BV of 2.08 based on its NAV of Rs. 24.52 as of July 31, 2021, and at a P/BV of 2.48 based on its post-IPO NAV of Rs. 20.53.

If we annualize FY22 earnings and attribute it to a fully diluted post-IPO paid-up equity base, then the asking price is at a P/E of 27 making it an aggressively priced issue. However, considering rising trends for bio-fuel and the company's ability to scale up capacity utilization, it is poised for bright prospects going forward.

COMPARISON WITH LISTED PEERS:
As per offer documents, KIL has no listed peers to compare with. 

DIVIDEND POLICY:
The company has not declared any dividend since incorporation. It will adopt a prudent dividend policy post listing based on its financial performance and future prospects. 

MERCHANT BANKER'S TRACK RECORDS:
This is the 13th mandate from Beeline Broking in the last four fiscals (Including the ongoing one). Out of the last 10 listings, 3 opened at discount, 1 at par and the rest with premiums ranging from 1.37% to 9% on the day of listings. D K Enterprises is yet to be listed.