Mamata Machinery IPO review (Apply)

•    The company is engaged in the manufacturing and exporting innovative plastic bags and pouch making machines, packaging machines, and extrusion equipments.
•    It enjoys long term relationship with renowned FMCG customers.
•    The company marked steady growth in its top and bottom lines for FY22 – FY24.
•    According to the management, annualized data on the basis of Q1 performance will mislead.
•    As per historical data, first half always generated around 30-35% of annual earnings.
•    The company is confident of maintaining the annual trends with steady growth.
•    Investors may park funds for medium to long term.

PREFACE:
Despite humble urge from the regulator for non-clubbing/bunching of more than 2 IPOs a day for opening for subscription, we are set to mark bunching of five mainboard IPOs that are opening on December 19, 2024, and here again very short time was spared for analysts to understand the pros and cons for the IPOs. Well, this is the first IPO from the set of 5 IPOs that are scheduled to mark opening on December 19, 2024, others to follow are TransRail Lighting, DAM Capital, Sanathan Textiles, Concord Enviro. We have one more set of 3 mainboard IPOs lined up for opening on December 20, 2024, and they are Ventive Hospitality, Senores Pharma, and Carraro India. No doubt, this provided an ample choice of selection for investment, it also makes it difficult to manage funding. Let us hope that the regulator is definably turns strict on this matter and brings some amicable solution.

ABOUT COMPANY:
Mamata Machinery Ltd. (MML) manufactures and exports plastic bags and pouch making machines, packaging machines and extrusion equipment. It provides end-to-end manufacturing solutions for the packaging industry. Products manufactured using its machines are used across several industries as packaging applications, such as the packing of food and FMCG products. It primarily sells packaging machinery to direct consumer brands catering to the FMCG, Food, & Beverage Industry and bag and pouch making machines to convertors and service providers who, in turn, mainly catering the FMCG and consumer industry. MML’s machineries are also utilized in non-packaging applications, such as e-commerce bags and garment packaging bags. The company consistently endeavor to expand product offerings and solutions to customers. 

Its customers include Balaji Wafers Private Limited, Dass Polymers Private Limited, Jflexy Packaging Private Limited, Euphoria Packaging Private Limited, Sunrise Packaging, Om Flex India, Chitale Foods, V3 Polyplast Private Limited, Dhalumal Packaging Industries LLC, Laxmi Snacks Private Limited, Ganges Jute Private Limited, Western India Cashew Company Private Limited and N. N. Print & Pack Private Limited, Gits Food Products Private Limited, Emirates National Factory for Plastic Ind LLC, Dhwani Polyprints Private Limited, Kamakshi Suedpack Private Limited, Bansal Industries and Hershey India Private Limited. 

The Company also provides after-sales service to customers. As part of its focus on innovation, it has launched new and advanced machines from time to time. It operates two machine manufacturing facilities, one in India and one in the USA. MML derives major portions of revenue and conduct business outside India through its wholly-owned subsidiary, Mamata Enterprises Inc. As of September 30, 2024. In addition to its sales and corporate office, it has two international offices located in Bradenton, Florida, USA and Montgomery, Illinois, USA, as well as sales agents in over 5 countries. 

It has been granted four patents, one for design and method to stack bags at very high speeds for India with the name “Machine and Method to Produce Plastic Bags” and the second for machine design and manufacturing process for “Flat Bottom Pouches” in various jurisdiction including USA, European Union, Japan and India with the name “Machine and Method to Produce Plastic Pouches”, the third for “Multi-Purpose Sealing Module for Plastic Film-based Bags and Pouches making Machine” and the fourth for “A Cross Sealing Device” . 

The patent for “Machine and Method to Produce Plastic Bags” describes the innovative method of handling bags in the conveying section of the side seal bag-making machine, in such a way that when each bag exits the conveying section, the speed and momentum of each bag are controlled precisely to achieve neat stacking of bags at high speeds. The patent for Flat Bottom Pouches describes the innovative process for pouches, which involves creating and inserting side gusset and bottom gusset panels to produce a three-side gusset pouch with a flat bottom with or without printed panels. Further, as on the date of this Red Herring Prospectus, it has applied for 2 patents, for cross sealing device (applied in Canada, EU, USA) and multi-purpose sealing module for plastic film-based bags and pouches making machine (applied in USA) that are currently pending for approval. It also has a workshop in Montgomery, Illinois, USA and Bradenton, Florida, USA, dedicated to pre-sales and after-sale services for bag and pouch-making machines.

As of September 30, 2024, it had 197 employees on its payroll, including a team of 87 engineers and application experts’ adept in electronic, mechanical, software and design applications continents, including regions such as Europe, South Africa and Asia. We sell our machines under the brand name “Vega” and “Win”. As of September 30, 2024, it has installed over 4,500 machines in 75 countries around the world.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route secondary IPO of 7382340 equity shares (worth Rs. 179.39 cr. at the upper cap). The company has announced a price band of Rs. 230 – Rs. 243 per equity shares of Rs. 10 each. The issue opens for subscription on December 19, 2024, and will close on December 23, 2024. The minimum application to be made is for 61 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 30% of the post-IPO paid-up equity capital. This being a pure secondary issue, no funds are going to the company.

The company has reserved 35000 shares for its eligible employees and offering them a discount of Rs. 12 per share, from the rest it has allocated not more than 50% for QIBs, not less than 15% for HNIs and not less than 35% for retail investors. 

The sole Book Running Lead Manager (BRLM) to this issue is Beeline Capital Advisors Pvt. Ltd., while Link Intime India Pvt. Ltd., is the registrar to the issue. Spread X Securities Pvt. Ltd. is the syndicate member.

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 40 – Rs. 100 (based on Rs. 10 FV) between March 1996, and March 2021. It has also issued bonus shares in the ratio of 1 for 1 in February 1995, and 8 for 1 in June 2024. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NIL, and Rs. 7.68 per share. 

Post-IPO, its current paid-up equity capital of Rs. 24.61 cr. will remain same as this is a pure OFS, and no funds are going to the company. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 597.97 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 196.57 cr. / Rs. 21.70 cr. (FY22), Rs. 210.13 cr. / Rs. 22.51 cr. (FY23), and Rs. 241.31 cr. / Rs. 36.13 cr. (FY24). For Q1 of FY25 ended on June 30 2024, it earned a net profit of Rs. 0.02 cr. on a total income of Rs. 29.19 cr. 

For the last three fiscals, the company has posted an average EPS of Rs. 11.48 (on a restated consolidates basis) and an average RoNW of 23.08 %. The issue is priced at a P/BV of 4.50 based on its NAV of Rs. 53.98 as of June 30, 2024, as well as post IPO-NAV.

If we attribute FY25 annualized earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 6942.86, and based on FY24 earnings, the P/E stands at 16.55. The issue appears reasonably priced on the basis of its FY24 earnings. 

According to the management, annualizing performance on the basis of Q1 number will mislead, as its historical data shows around 30-35% of annual performance is achieved in first half and second half always remains good. Based on encouraging trends, the management is confident of maintaining the steady growth in its annual performances going forward.
 
For the reported periods, the company has posted PAT margins of 11.29% (FY22), 11.20% (FY23), 15.27% (FY24), 0.79% (Q1-FY25), and the RoCE margins of 25.73%, 15.71%, 31.29%, - (0.78) % for the referred periods respectively. 

DIVIDEND POLICY:
The company has paid a dividend of 5% for FY22 to FY25 (till filing of this offer document). It has adopted a dividend policy in June 2024, based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Rajoo Engineers, Windsor Machines, and Kabra Extrusion as their listed peers. They are trading at a P/E of 165, NA, and 49.4 (as of December 13, 2024). However, they are not truly comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORD:
The BRLM associated with the offer has handled 51 pubic issues in the past three fiscals, out of which 2 issues closed below the offer price on the listing date.