Vaidya Sane NSE SME IPO review (Avoid)

•    VSAL is claiming to be a unique medical service institution proving Ayurved based treatments. 
•    It has posted erratic financial performance so far. 
•    Around 80% of IPO proceeds are to be used for advertising and branding which is a major concern.
•    The issue is exorbitantly priced and may be ignored. 

ABOUT COMPANY:
Vaidya Sane Ayurved Laboratories Ltd. (VSAL) is claiming to be a unique medical service institution that strives to treat chronic ailments like cardiac disease, diabetes, hypertension and obesity with the distinctive outlook of amalgamating technology with the traditional healing of Ayurveda.

Its approach to treatment using non-invasive, multidisciplinary and innovative therapies has helped establish it as a dependable option for treating chronic ailments. VSAL is a health care provider primarily in India's chronic care ecosystem. The company provides healthcare services through Madhavbaug clinics. As of November 30, 2021, it operates 274 clinics across Maharashtra, Madhya Pradesh, Gujarat, Uttar Pradesh, Goa, Karnataka, Delhi and Chhattisgarh. Out of these 52 are company-owned and 222 are franchise clinics. Madhavbaug offers a 360-degree ecosystem to its patients.

VSAL also operates two cardiac prevention and rehabilitation hospitals in Khopoli and Nagpur respectively. Vaidya Sane's Ayurvedic Education and Agricultural Research Trust is providing noninvasive medical services through the Khopoli Hospital. The company has entered into MOU dated April 1, 2019, with Vaidya Sane's Ayurvedic Education and Agricultural Research Trust for the entire management, medical services and treatments being carried out at Khopoli Hospital. In consideration, the trust shall pay the Company 80% of the total fees/ amount received by it under this arrangement on monthly basis after providing for all reasonable expenses and applicable taxes.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans for branding and advertising (Rs. 16.00 cr.) and general corporate purpose (Rs. 3.73 cr.), VSAL is coming out with a maiden IPO of 2771200 equity shares of Rs. 10 each at a fixed price of Rs. 73 per share to mobilize Rs. 20.23 cr. The issue opens for subscription on February 10, 2022, and will close on February 15, 2022. Minimum application is to be made for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.36% of the post issue paid-up capital of the company. VASL will spend Rs. 0.50 cr. for this IPO process. 

The issue is solely lead managed by First Overseas Capital Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. BHH Securities Pvt. Ltd. is the market maker for the company. 

Having issued initial equity at par, the company issued further equity in the price range of Rs. 3.60 to Rs. 93.30 between May 2009 and October 2021. It has also issued bonus shares in the ratio of 154 for 1 in September 2021. Thus coffers are almost empty. The average cost of acquisition of shares by the promoters is Rs. 0.04 per share. 

Post-IPO, VSAL's current paid-up capital of Rs. 7.74 cr. will stand enhanced to Rs. 10.51 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 76.75 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, for the last three fiscals, VSAL has posted turnover/net profits (loss) of Rs. 62.57 cr. / Rs. 0.50 cr. (FY19), Rs. 75.30 cr. / Rs. - (0.56) cr. (FY20) and Rs. 52.28 cr. / Rs. 1.55 cr. (FY21). For the first half of FY22 ended on September 30, 2021, it has earned a net profit of Rs. 1.35 cr. on a turnover of Rs. 31.57 cr. The sudden boost in bottom lines for the last 18 months appears to be window dressing before the IPO to get higher valuations. Despite the highest top line, it suffered a setback for FY20 and in the following fiscals, on a lower top line it notched up higher profits which is raising eyebrows. What is more, for H1 of FY22 it against posted superb performance which appears to be the window dressing to fetch higher valuation.  

For the last three fiscals, VSAL has posted an average EPS of Rs. 0.96 and an average RoNW of 6.60%. The issue is priced at a P/BV of 4.58 based on its NAV of Rs. 15.95 as of March 31, 2021, but has not given any such data as of September 30, 2021, and at a P/BV of 2.24 based on its post-IPO NAV of Rs. 32.59. 

If we annualize its FY22 performance with super profits and attribute it to fully diluted post IPO equity, then the asking price is at a P/E of 28.29 and on the basis of the last three years average EPS the P/E stands at 76.04. Thus the issue is priced exorbitantly.  

COMPARISON WITH LISTED PEERS:
As per offer documents, VSAL 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 RECORD:
This is the 12th mandate from First Overseas in the last four fiscals (including the ongoing one). Out of the last 10 listings, 1 opened at discount, 2 at par and the rest with premiums ranging from 1.4% to 120% on the day of listing.