Malpani Pipes BSE SME IPO review (May apply)

•    The company is engaged in manufacturing and marketing of high-grade plastic pipes for industrial/agricultural/water distribution system.
•    It is also trading in granules and PVC Pipes and providing related services.
•    Boosted bottom lines in pre-IPO periods i.e. from FY24 onwards raise eyebrows and concern over its sustainability.
•    It is operating in a highly competitive and fragmented segment.
•    Based on its recent financials, the issue appears fully priced.
•    Well-informed/cash surplus investors may park moderate funds for medium term. 

ABOUT COMPANY:
Malpani Pipes & Fitting Ltd. (MPFL) an ISO 9001:2015 certified company based in Ratlam, Madhya Pradesh, manufactures a range of high-grade plastic pipes. Its products include High-Density Polyethylene (HDPE) Pipes, Medium-Density Polyethylene (MDPE) Pipes, and Linear Low-Density Polyethylene (LLDPE) Pipes, all marketed under the brand name “Volstar”. The company is also engaged in the trading of granules and PVC pipes, as well as the sale of services. 

It has manufacturing plant located in central India i.e. Ratlam, Madhya Pradesh. Its plant is well equipped with essential machinery, infrastructure, and an in-house testing facility, which ensures that product conforms to the requisite standards.

MPFL now operates 10 production lines with a total installed capacity of 11,500 M.T.P.A. and has expanded product range to include MDPE, LLDPE, Sprinkler Pipes, and Drip Pipes. As of December 31, 2024, it had 51 employees on its payroll and additional 30 contract workers in various department.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden book building route IPO of 2880000 equity shares to mobilize Rs. 25.92 cr. (at the upper cap). The company has announced the price band of Rs. 85 – Rs. 90 per share of Rs. 10 each. The issue opens for subscription on January 28, 2025, and will close on January 31, 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 26.72% of the post-IPO paid up equity capital of the company. From the net proceeds of the fresh equity issue, it will utilize Rs. 3.50 cr. for capex on plant and machinery, Rs. 17.00 cr. for repayment of debt, and the rest for general corporate purposes. 

The issue is solely lead managed by Interactive Financial Services Ltd., and Bigshare Services Pvt. Ltd. Is the registrar to the issue, MNM Stock Broking Pvt. Ltd. is the market maker for the company, as well as the syndicate member. The issue is underwritten to the tune of 15% by Interactive Financial and 85% by MNM Stock Broking. 

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 11 – Rs. 32 between August 2019 – February 2024. It has also issued bonus shares in the ratio of 9 for 4 in August 2024. The average cost of acquisition of shares by the promoters is Rs. 3.12, Rs. 4.35, and Rs. 7.37 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 7.90 cr. will stand enhanced to Rs. 10.78 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 97.00 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 34.94 cr. / Rs. 0.89 cr. (FY22), Rs. 82.57 cr. / Rs. 2.08 cr. (FY23), and Rs. 141.16 cr. / Rs. 7.40 cr. (FY24). For 8M of FY25 ended on November 30, 2024, it earned a net profit of Rs. 5.09 cr. on a total income of Rs. 84.55 cr. Boosted bottom line in pre-IPO fiscal raises eyebrows and concern over its sustainability going forward. Its higher debt equity ratio of 2.04 raises concern.

For the last three fiscals, the company has posted an average EPS of 22.95 and an average RoNW of 48.86%. The issue is priced at a P/BV of 3.60 based on its NAV of Rs. 24.98 as of November 30, 2024, and at a P/BV of 2.13 based on its posts-IPO NAV of Rs. 42.35 per share (at the upper cap). 

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 12.69. Based on FY24 earnings, the issue is at a P/E of 13.12. The issue relatively appears fully priced based on its recent financial performance. 

For the reported periods, the company has posted PAT margins of 2.55% (FY22), 2.52% (FY23), 5.25% (FY24), 6.05% (8M-FY25), and RoCE margins of 10.66%, 12.78%, 21.74%, 11.17%, 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 shown AiK Pipes, Kriti Ind., as their listed peer. They are trading at a P/E of 23.2, and 30.1 (as of January 24, 2025). However, they are not truly comparable on an apple-to-apple basis.  

MERCHANT BANKER’S TRACK RECORD:
This is the 22nd mandate from Interactive Financial in the last four fiscals. Out of the last 10 listings, 3 opened at discount, and the rest listed with premiums ranging from 4.78% to 90.00% on the date of listings. Thus it has posted an average track record so far.