L. K. Mehta Poly BSE SME IPO review (Avoid)

•    The company is engaged in the trading and manufacturing of plastic products/primarily ropes and twines.
•    It posted growth in its top lines for the reported periods, but its bottom line marked erratic movements.
•    Based on recent financials, the issue appears exorbitantly priced.
•    The company is operating in a highly competitive and fragmented segment.
•    Tiny paid-up equity capital post-IPO indicates longer gestation period.
•    There is no harm in skipping this pricey bet that can be termed as “High Risk/No Return” offer.

ABOUT COMPANY:
L K Mehta Polymers Ltd. (LMPL) is actively involved in the trading and manufacturing of comprehensive array of Plastic products, addressing the diverse needs of discerning customers. Its product line is specifically designed to encompass a wide range of ropes and twines, including monofilament ropes, danline ropes, tape ropes, baler twines, packaging twine (sutli). It is also engaged in trading and reprocessing of basic raw materials like polypropylene granules and polyethylene granules for various customers. A significant milestone was reached in 2002 with the expansion of its operations with the establishment of a new production unit, the actual working of the unit was started by our company in 2004, focusing on woven sack bags and pipes. 

This strategic decision not only broadened the company's product range but also solidified its presence in the industry. Despite initial challenges with the availability of a high-power electricity line at its location, the company demonstrated remarkable resilience by successfully operating the unit until 2022. In 2022, the unit was transferred afterwards. Through continuous innovation and a relentless pursuit of excellence, the company navigated through challenges and emerged strong, maintaining its growth trajectory.

LMPL sells the products under the brand name of “Super Pack”, establishment of its brand “SuperPack” served as a testament to the company's commitment to delivering superior quality and building enduring relationships with customers. This brand identity not only resonated with consumers but also distinguished the company from its competitors. The Company based on its experience and its standards, conforms to major specifications and customer requirements. Its capacity utilization has marked declining trends. As of January 25, 2025, it had 21 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 1040000 equity shares of Rs. 10 each at a fixed price of Rs. 71 per share to mobilize Rs. 7.38 cr. The issue opens for subscription on February 13, 2025, and will close on February 17, 2025. 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 27.08% of the post-IPO paid up equity capital of the company. The company is spending Rs. 0.70 cr. for this IPO process, and from the net proceeds of the issue, it will utilize Rs. 5.34 cr. for working capital, and Rs. 1.34 cr. for general corporate purposes. 

The issue is solely lead managed Swastika Investmart Ltd., and Bigshare Services Pvt. Ltd. Is the registrar to the issue. Swastika Investmart Ltd., is also the market maker.

After issuing initial equity shares at par value, the company issued further equity shares in the price range of Rs. 30 – Rs. 40 per share between November 2007 and February 2010. It has also issued bonus shares in the ratio of 3 for 1 in May 2024. The average cost of acquisition of shares by the promoters is Rs. 2.50, and Rs. 3.49 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 2.80 cr. will stand enhanced to Rs. 3.84 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 27.26 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit/ - (loss) of Rs. 11.94 cr. / Rs. 0.04 cr. (FY22), Rs. 17.14 cr. / Rs. – (0.01) cr. (FY23), and Rs. 18.87 cr. / Rs. 0.86 cr. (FY24). For 9M of FY25 ended on December 31, 2024, it earned a net profit of Rs. 0.42 cr. on a total income of Rs. 11.98 cr. The sudden boost in its bottom lines from FY24 onwards raises eyebrows and concern over its sustainability, as it is operating in a highly competitive and fragmented segment.

For the last three fiscals, the company has posted an average EPS of 1.73 and an average RoNW of 14.37%. The issue is priced at a P/BV of 5.32 based on its NAV of Rs. 13.34 as of December 31, 2024, and at a P/BV of 2.70 based on its posts-IPO NAV of Rs. 26.29 per share. 

If we attribute FY25 annualized super earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 48.97. Based on FY24 earnings, the issue is at a P/E of 31.84. The issue relatively appears exorbitantly priced based on its recent financial performance. 

For the reported periods, the company has posted PAT margins of 0.36% (FY22), - (0.05) % (FY23), 4.71% (FY24), 3.52% (9M-FY25), and RoCE margins of 900%, 7.00%, 16.00%, 10.20%, respectively for the referred periods.

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 no listed peers to compare with.

MERCHANT BANKER’S TRACK RECORD:
This is the 14th mandate from Swastika Investmart in the last three fiscals. Out of the last 10 listings, 1 opened at discount, 1 at par and the rest listed with premiums ranging from 3.31% to 110.64% on the date of listings.