Mayank Cattle BSE SME IPO review (Avoid)

•    MCFL is engaged in manufacturing and marketing of Maize Oil and Maize Cake.
•    It posted inconsistency in its top and bottom lines for the reported periods. 
•    The company is operating in a highly competitive and fragmented segment.
•    Based on annualized FY24 earnings, the issue appears aggressively priced. 
•    There is no harm in skipping this pricey bet. 

ABOUT COMPANY:
Mayank Cattle Food Ltd. (MCFL) is engaged in manufacturing of Maize Cake (Cattle Feed) & Maize Oil (Non-edible). The business process involves purchase of the Maize Germ, then mechanized expelling, packaging and selling of the Maize Oil and Maize Cake.

The company operates a manufacturing facility that is equipped with the latest machinery and technology which is spread over approx. 87,133 sq.ft. situated at R. S. No. 162, Rajkot Jamnagar Highway, Near Khandheri Stadium, Naranka, Paddhari, Rajkot - 360110, Gujarat. Its manufacturing facility is located in a strategic location that provides easy access to raw materials and transportation. Also, as the factory is located on Rajkot Jamnagar Highway, which is a well-developed area in terms of all the infrastructural facilities like electricity, water, communication, banking etc. very easily.

At present, the Company has a production capacity of 22,896 MT per annum of Maize Oil and 45,792 MT per annum of Maize Cake.

The Company has a diversified customer base covering states like Gujarat, Delhi and Maharashtra. MCFL mainly markets product through different revenue channels which includes marketing agents, brokers and direct to consumers. In the year 2020, it setup environment friendly solar power panels of 150kva at factory premises. The electricity generated at these solar plants is used for captive consumption by the company. As of the filing of this offer document, it had 120 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 1800000 equity shares of Rs. 10 each at a fixed price of Rs. 108 per share to mobilize Rs. 19.44 cr. The issue opens for subscription on January 29, 2024, and will close on January 31, 2024. The minimum application to be made is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 33.33% of the post-IPO paid-up capital of the company. The company is spending Rs. 1.45 cr. for this IPO process, and from the net proceeds of the issue, it will utilize Rs. 1.84 cr. for capex on additional plant and machinery, Rs. 12.15 cr. for working capital, and Rs. 4.00 cr. for general corporate purposes. 

The issue is solely lead managed by Finshore Management Services Ltd., and Cameo Corporate Services Ltd. is the registrar of the issue. Rikhav Securities Ltd. is the market maker for the company. 

The company has issued entire equity capital at par so far and has given bonus shares in the ratio of 17 for 1 in May 2023. The average cost of acquisition of shares by the promoters is Rs. 0.44 per share.

Post-IPO, company's current paid-up equity capital of Rs. 3.60 cr. will stand enhanced to Rs. 5.40 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 58.32 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 186.53 cr. / Rs. 0.72 cr. (FY21), Rs. 323.00 cr. / Rs. 0.80 cr. (FY22), and Rs. 309.58 cr. / Rs. 1.31 cr. (FY23). For 4M of FY24 ended on July 31, 2023, it earns a net profit of Rs. 0.57 cr. on a total income of Rs. 75.27 cr. Though it marked growth in its top line, its net profit marked pressure as it is operating in a highly competitive and fragmented segment. 

For the last three fiscals, it has reported an average EPS of Rs. 2.90, and an average RONW of 26.06%. The issue is priced at a P/BV of 7.29 based on its NAV of Rs. 14.82 as of July 31, 2023, and at a P/BV of 2.35 based on its post-IPO NAV of Rs. 45.88 per share.

If we attribute annualized FY24 earnings to its post-IPO fully diluted paid-p capital, then the asking price is at a P/E of 33.86. Thus the issue appears aggressively priced. 

For the reported periods, the company has posted PAT margins of 0.39% (FY21), 0.25% (FY22), 0.43% (FY23), 0.76% (4M-FY24). Thus it has reported inconsistency in its PAT margins. 

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. 

COMPARISON 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 25th mandate from Finshore Management in the last three fiscals, out of the last 10 listings, 2 opened at discount, 1 at par, and the rest opened at premiums ranging from 13.89% to 94.44% on the date of listing.