Leo Dry Fruits BSE SME IPO review (May apply)

•    The company is engaged in manufacturing/processing/trading and marketing wide range of grocery products.
•    Some of the products are sold under own brand “Vandu” and “Fryd”.
•    The company operates on B2B, B2C, and D2C business model.
•    The sudden boost in its bottom lines for FY23 and FY24 raise eyebrows.
•    Based on FY25 annualized earnings, the issue appears fully priced. 
•    Well-informed investors may park moderate funds for medium term.

ABOUT COMPANY:
Leo Dry Fruits & Spices Trading Ltd. (LDFSTL) is engaged in manufacturing/processing, trading and marketing of wide range of spices, dry fruits and other grocery products under the brand name “VANDU” and frozen/semi fried products under the brand name of “FRYD”. The company is currently engaged in supplying of various whole spices and blended spices under spices category, plain, roasted and flavoured dry fruits under dry fruits category and ghee, various type of seasoning, chiz bites, poppy seeds, sesame seeds and many more under other grocery products category in different packaging sizes.

To expand its product range, the company is selling ghee under brand name “VANDU” which is manufactured and packed by reliable manufacturer that adhere to follow strict quality standards along with the necessary approvals to ensure customers receive the same level of quality and excellence expected from its brand. The Company is also dealing in other grocery products such as seasonings, chili flakes, garlic powder, asafoetida (hing), black salt, pulses, dry ginger, fennel seeds, fenugreek seeds, nigella seeds, mace, nutmeg etc. which are sourced from third party producers or wholesalers and sell under “Vandu” brand. Also, it is acting as anchor distributor to re-distribute the soft drink named campa cola. The company does not have any long-term agreement with any of such vendors for supply of ghee or any of the grocery products.

The company is doing its business in two verticals i.e., trading and manufacturing/processing of wide range of spices, dry fruits, frozen/semi fried products and other grocery products. Under trading division, it is dealing in various types of whole spices and dry fruits in bulk quantity under unbranded sale, various types of whole spices and dry fruits in smaller quantity under brand name “VANDU” and frozen/semi fried products under the brand name of “FRYD”. Under its manufacturing/processing division, it is processing blended spices and other grocery products such as chiz bites and seasoning at its manufacturing/processing unit located at Thane, Maharashtra.

The company is catering B2B, B2C and D2C segment where under B2B segment, company is engaged in wholesale trading, where it is selling various types of whole spices and dry fruits in bulk quantity under unbranded sale to various traders for further sale. Under B2C segment, company is engaged in retail segment where, it is selling the whole spices, blended spices, dry fruits and other grocery products under brand name “VANDU” through various distributors, super stockists, E -commerce platforms such as Amazon, Flipkart and own website. Under D2C segment it is selling products through website and on direct order receive from the customers. As of September 30, 2024, it had 46 employees on its payroll. It also hires contract workers as and when needed.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 4830000 equity shares of Rs. 10 each to mobilize Rs. 25.12 cr. at the upper cap. The company has announced a price band of Rs. 51 –  Rs. 52 per share. The issue opens for subscription on January 01, 2025, and will close on January 03, 2025. The minimum number of shares to be applied is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 27.00% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, the company will utilize Rs. 15.00 cr. for working capital, Rs. 4.25 cr. for branding, advertising and marketing activities, and the rest for general corporate purposes

The IPO is solely lead managed by Shreni Shares Ltd., and Bigshare Services Pvt. Ltd., is the registrar to the issue. Rikhav Securities Ltd. is the market maker for the company and Shreni Shares Ltd. is the syndicate member. 

Having issued initial equity shares at par value, the company issued further equity shares at a fixed price of Rs. 390.00 per share in October 2023, and November 2023. It also issued bonus shares in the ratio of 6 for 1 in January 2024. The average cost of acquisition of shares by the promoters is Rs. 9.24, Rs. 12.19, and Rs. 13.76 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 13.06 cr. will stand enhanced to Rs. 17.89 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 93.03 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 5.27 cr. / Rs. 0.08 cr. (FY22), Rs. 36.47 cr. / Rs. 3.64 cr. (FY23), and Rs. 62.27 cr. / Rs. 6.64 cr. (FY24). For H1 of FY25 ended on September 30, 2024, it earned a net profit of Rs. 1.87 cr. on a total income of Rs. 17.88 cr. The sudden boost in its bottom lines for FY23 /FY24 raise eyebrows. 

For the last three fiscals, the company has reported an average EPS of Rs. 3.96 and an average RoNW of 34.99%. The issue is priced at a P/BV of 1.90 based on its NAV of Rs. 27.39 as of September 30, 2024, and at a P/BV of 2.24 based on its post-IPO NAV of Rs. 23.26 per share (at the upper cap).

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 24.88, and based on FY24 earnings, it stands at 14.02. The issue relatively appears fully priced.

For the reported periods, the company has posted PAT margins of 1.50% (FY22), 9.97% (FY23), 10.68% (FY24), 10.47% (H1-FY25), and RoCE margins of 2.98%, 41.57%, 33.52%, 6.26%, for the referred periods respectively. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. 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 Jetmall Spices, HOAC Foods, Madhusudan Masala, as their listed peers. They are trading at a P/E of 658.0, 36.2, and 26.3 (as of December 30 2024). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER’S TRACK RECORD:
This is the 36th mandate from Shreni shares in the last three fiscals, out of the last 10 listings 1 listed at par, the rest listed with premiums ranging from 4.88% to 141.94% on the date of listing.