Meson Valves BSE SME IPO review (Avoid)

•    MVIL is currently in the business of supplying various types of industrial components such as valves, actuators, control cabinets, gaskets etc.
•    After static top lines for FY21 and FY22, it posted quantum jump for FY23.
•    The sudden boost in its bottom lines for FY22 and FY23 raises eyebrows.
•    Based on its FY23 super earnings, the issue appears greedily priced. 
•    There is no harm in skipping this pricey offer.

ABOUT COMPANY:
Meson Valves India Ltd. (MVIL) (formerly known as Sander Meson India Pvt. Ltd.) is engaged in the business of assembling, buying, selling, distributing, importing, exporting or otherwise dealing in products like valves, actuators, remote control systems, control cabinets, tanks, visualization system, piping, pumps, fittings, gaskets, flanges and measurement devices. It also deals in the installation, maintenance, servicing or otherwise handling of equipment and services that control and manage all products like valves, actuators, remote control systems, control cabinets, tanks, visualization systems, piping, pumps, fittings, gaskets, flanges and measurement devices.

The company supplies valves, actuators, Strainers and remote-control valve systems to the industries both in domestic and international markets. It supplies mainly to Naval, Oil and Gas industries, Power, Refineries and General Industries, both in domestic and international markets.

MVIL intends to expand its business operations by entering into a segment of manufacturing of valves, actuators, remote control systems, control cabinets, tanks, visualization systems, piping, pumps, fittings, gaskets, flanges and measurement devices. As of March 31, 2023, it had 34 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 3048000 equity shares of Rs. 10 each at a fixed price of Rs. 102 per share to mobilize Rs. 31.09 cr. The issue opens for subscription on September 08, 2023, and will close on September 12, 2023. 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 30% of the post-IPO paid-up capital of the company. MVIL is spending Rs. 0.51 cr. for this IPO process and from the net proceeds, it will utilize Rs. 11.37 cr. for the purchase of plant and machinery for setting up a new manufacturing unit, Rs. 11.95 cr. for working capital, and Rs. 7.26 cr. for general corporate purposes.  

Shreni Shares Ltd. is the sole lead manager and Maashitla Securities Pvt. Ltd. is the registrar of the issue. Shreni Shares Ltd. is also the market maker for the company.

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 83.35 and Rs. 1650 per share between February 2023 and April 2023, It has also issued bonus shares in the ratio of 49 for 1 in March 2023. The average cost of acquisition of shares by the promoters is Rs. NIL, and Rs. 2.06 per share. 

Post-IPO, MVIL's current paid-up equity capital of Rs. 7.11 cr. will stand enhanced to Rs. 10.16 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 103.63 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, MVIL has posted a total income/net profit of Rs. 15.42 cr. / Rs. 0.12 cr. (FY21), Rs. 14.31 cr. / Rs. 2.13 cr. (FY22), and Rs. 37.19 cr. / Rs. 4.52 cr. (FY23). The quantum jump in performance in a pre-IPO year i.e. FY23 raises eyebrows and in particular, the spurt in its bottom lines for the last two fiscals raises concern over sustainability. 

For the last three fiscals, the company has reported an average EPS of 4.36 and an average RoNW of 42.26%. The issue is priced at a P/BV of 3.82 based on its NAV of Rs. 26.72 as of March 31, 2023, and at a P/BV of 2.65 based on its post-IPO NAV of Rs. 38.47 per share. 

If we attribute FY23 earnings to the post-IPO fully diluted paid-up equity capital of the company, then the asking price is at a P/E of 22.92. Thus the issue appears greedily priced. 

MVIL has posted PAT margins of 0.77% (FY21), 15.08% (FY22), and 12.34% (FY23), thus it posted inconsistency in its net earnings.  

DIVIDEND POLICY:
The company has not declared any dividends since incorporation. 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 20th mandate from Shreni Shares in the last three fiscals (including the ongoing one). Out of the last 10 listings, 1 opened at a discount and the rest with premiums ranging from 2.74% to 90% on the day of listing.