Labelkraft Techno BSE SME IPO review (Avoid)

•    LTL is engaged in the barcode label and related services. 
•    Post corporatization, it has just 52 days of working.
•    Based on FY23 annualized financials, the issue is exorbitantly priced. 
•    There is no harm in skipping this pricey bet. 

ABOUT COMPANY:
Labelkraft Technologies Ltd. (LTL) has been incorporated in the year 2022, prior to the incorporation of the company its promoter Ranjeet Solanki was carrying on the business as a proprietorship concern under the name of "Solanki Enterprises" since the year 1997. Later, it started the business of barcode labels in the year 2009. Later, on November 11, 2022, the running business of the above proprietorship concern was taken over by the company, along with the assets and liabilities of the proprietorship concern.

LTL is engaged in the business of providing barcode code solutions, catering to many different segments of industries including FMCG, logistics service providers, chemicals, garments etc. it supplies barcode printers, software, scanners, mobile computers etc. and are also engaged in the business of manufacturing the regular consumables required for the barcode printers namely the barcode ribbons, self-adhesive barcode and product labels in roll and sheet forms.

Apart from the above, it has also installed a self-adhesive tape-slicing machine to slit mirror mounting tapes, tissue tapes, masking tapes etc. which are supplied to various industries across the country for their packaging needs. LTL is also engaged in the supply of ID card printers, consumables, patient identification wristbands, automatic label applicator machines, satin, and taffeta rolls for garment companies and self-adhesive tape products. It has a long list of reputed clientele including companies like Wipro GE Healthcare Private Limited, Titan Company Limited, ITC Ltd and Indian Oil Corporation. As of December 31, 2022, it had 28 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 864000 equity shares of Rs. 10 each at a fixed price of Rs. 55 per share to mobilize Rs. 4.75 cr. The issue opens on March 13, 2023, and will close on March 15, 2023. The minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.63% of the post-IPO paid-up capital of the company. LTL is spending Rs. 0.68 cr. for the IPO process indicating arrangements of funding.  From the net proceedings, it will utilize Rs. 1.81 cr. for capex on additional plant and machinery installation, Rs. 1.50 cr. for working capital, and Rs. 0.76 cr. for general corporate purposes. 

Hem Securities Ltd. is the sole lead manager as well as the market maker and Bigshare Services Pvt. Ltd. is the registrar of the issue. 

Having issued initial equity shares at par, the company issued further equity shares at a price of Rs. 2325 per share in December 2022 and issued bonus shares in the ratio of 33 for 1 in January 2023. This exercise appears to be an eyewash and to get the fancy value with a higher NAV. The average cost of acquisition of shares by the promoters is Rs. 20.99 per share. 

Post-IPO, LTL's current paid-up equity capital of Rs. 2.38 cr. will stand enhanced to Rs. 3.24 cr. Based on the IPO price, the company is looking for a market cap of Rs. 17.84 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last first 8 months of FY23 ended on November 30, 2022, it earned a net profit of Rs. 0.04 cr. on a turnover of Rs. 0.69 cr. (for the period from 10.10.22 to 30.11.22).

As a proprietary firm, for the last three fiscals, it has posted turnover/ profit before tax of Rs. 83.30 cr. / Rs. 0.80 cr. (FY20), Rs. 62.21 cr. / Rs. 0.91 cr. (FY21), and Rs. 52.93 cr. / Rs. 1.44 cr. (FY22). For eight months of FY23 ended on November 30, 2022, it earned a profit before tax of Rs. 2.12 cr. on a turnover of Rs. 76.62 cr. Total revenue included on average 85% of income from the sale of import licenses. 

For the broken period of FY23, it posted an EPS of Rs. 0.17 and a RoNW of 45.02% (not annualized). The issue is priced at a P/BV of 3.03 based on its NAV of Rs. 18.18 as of November 30, 2022, and at a P/BV of 1.88 based on its post-IPO NAV of Rs. 29.26 per share.  

If we annualize FY23 earnings (post corporatization of the proprietary concern) and attribute it to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of around 62.5. Thus the issue is exorbitantly priced. 

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

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
This is the 23rd mandate from Hem Securities in the last three fiscals (including the ongoing one). Out of the last 10 listings, all were listed at premiums ranging from 2.56% to 166.67% on the listing date.