Mehul Colours BSE SME IPO review (May apply)

•    The company is engaged in the manufacturing of masterbatches of various types as per need of customers.
•    Its top line marked gradual rise, but bottom line surged and almost doubled in the last three fiscals.
•    It is operating in a highly competitive and fragmented segment.
•    Based on recent financial data, the issue appears fully priced.
•    Well-informed investors may park funds for medium to long term.

ABOUT COMPANY:
Mehul Colours Ltd. (MCL) is primarily engaged in the manufacturing of masterbatches, which are used in the plastics industry to impart colour and enhance the functional properties of plastic products. Masterbatches are concentrated mixtures of pigments and additives that are uniformly dispersed in polymer carriers, facilitating the effective integration of colour and performance-enhancing properties into plastic products. During plastic processing, masterbatches enable the uniform dispersion of pigments within the plastic resin, ensuring consistent colour distribution throughout the final plastic product without uneven patches or variations. They are also used to enhance visual appearance and impart specific properties to plastic materials such as UV resistance, flame retardancy and antistatic
behaviour.

In Fiscal 2025, it supplied masterbatches to over 500+ customers spanning a broad array of industries, including stationery, plastic household products, plastic toys, agricultural tools, pipes and fittings, packaging materials, wires & cables, electrical switches & accessories, sheets and various other plastic products. In addition to manufacturing masterbatches, the Company is also engaged in the sale of pigments, which are blended by it to create customized pigment solutions tailored to specific industry and customer requirements. Pigments are solid colourants in fine particle form that provide colour to plastic products. For the Fiscal 2025, Masterbatches and Pigments contributed 84.17% and 15.83% respectively to its revenue from operations.

MCL’s product line includes colour masterbatches, additive masterbatches, special effect masterbatches and filler masterbatches to meet specific functional and aesthetic needs in plastic manufacturing. Colour masterbatches ensure uniform and consistent colouration across plastic products. Additive masterbatches enhance the durability, functionality and processability of plastics by imparting essential properties such as UV protection, slip resistance, tackiness, flame retardancy, impact strength and improved extrusion capabilities. These include UV Stabilizers, Slip/Anti-block agents, PIB Masterbatch, Flame Retardants, Impact Modifiers and PPA Masterbatch. Special effect masterbatches, offering finishes like pearl, metallic, sparkle, glitter, fluorescent and wood effects, alter the visual and tactile characteristics of plastics. Filler masterbatches, primarily composed of calcium carbonate (CaCO₃), talc, or other mineral fillers, are used to enhance rigidity and processing efficiency.

For the fiscal year ended 2025, the company generated 93.17% of its total revenue from 16 states and 2 Union Territories in India, with key markets in Maharashtra, Gujarat, Dadra & Nagar Haveli and Kerala and the remaining 6.83% of revenue were from exports to countries such as Canada, Jordan, Qatar and Thailand. During Fiscal 2025, Fiscal 2024 and Fiscal 2023, its exports reached markets including Canada, Chad, Jordan, Oman, Qatar, Saudi Arabia and Thailand. As of June 30, 2025, it had 32 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 3008000 equity shares to mobilize Rs. 21.66 cr. at the upper cap. It has announced a price band of Rs. 68 – Rs. 72 for share of Rs. 10 each. The IPO opens for subscription on July 30, 2025, and will close on August 01, 2025. The minimum application to be made is for 3200 shares and in multiple of 1600 shares thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 28.51% of post-IPO paid-up equity capital of the company. From the net proceeds of the issue, the company will utilize Rs. 14.64 cr. for capex on setting up of a new manufacturing unit, Rs. 4.00 cr. for working capital, and the rest for general corporate purposes.

The IPO is solely lead managed by Seren Capital Pvt. Ltd., while Bigshare Services Ltd. is the registrar to the issue. Asnani Stock Broker Pvt. Ltd., is the market maker, and also a syndicate member. 

The company has issued entire initial equity shares at par value. It has also issued bonus shares in the ratio of 25 for 1 in October 2024. The average cost of acquisition of shares by the promoters is Rs. NIL, and Rs. 0.38 per share.

Post-IPO, company’s current paid-up equity capital of Rs. 7.54 cr. (7541040 equity shares) will stand enhanced to Rs. 10.55 cr. (10549040 equity shares). Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 75.95 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 21.37 cr. / Rs. 2.94 cr. (FY23), Rs. 22.66 cr. / Rs. 3.22 cr. (FY24), Rs. 23.71 cr. / Rs. 5.50 cr. (FY25). It marked average limited growth in its top lines, but surge in bottom line raise eyebrows.

For the last three fiscals, the company has reported an average EPS of Rs. 5.72, and an average RoNW of 31.27%. The issue is priced at a P/BV of 3.18 based on its NAV of Rs. 22.62 as of March 31, 2025, but its post-IPO NAV data is missing from offer documents.

If we attribute its FY25 super earnings on post-IPO expanded equity base, then the asking price is at a P/E of 13.79, and based on its FY24 earnings, the P/E stands at 23.61. Thus, based on its recent financial data, the issue appears fully priced.

The company has reported PAT margins of 13.88% (FY23), 14.67% (FY24), 24.11% (FY25), and RoCE margins of 49.41%, 36.67%, 43.53%, 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 performances and future prospects.

COMPARISON WITH LISTED PEERS:
As per offer document, the company has shown Polylink Poly, and Deep Polymers, as their listed peers. They are trading at a P/E of around 27.1, and 26.1 (as of July 25, 2025). However, they are not truly comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORDS:
This is the 2nd mandate from Seren Capital in the ongoing fiscal. The only listing that took place opened at a premium of 29.17% on the listing date.