Mish Designs BSE SME IPO review (Avoid)

•    MDL is in the business of selling garments on online channels with third party operations.
•    It does not have its own manufacturing unit. 
•    The financial performance so far has been below average.
•    Based on FY annualized earnings, the issue is greedily priced. 
•    Simply stay away from such pricey and dicey offers. 

ABOUT COMPANY:
Mish Designs Ltd. (MDL) is engaged in the process of fabrication of fabric into garments under the brand name "MISH", "CURVES BY MISH" in India. It exports product currently to UAE under the brand name "ZOEY". It offers collection of over 1000 trending designs to cater the diverse taste of customer. 

The Company offers varieties of products in Women's wear segment such as Dresses, Gowns, Tops, Co-Ords, T-shirts, Trousers and Palazzos. The company is asset-light in respect of plant, property and equipment which enable it to achieve a high return on capital employed, with a substantial portion of sales being generated through E-Commerce platforms. This model has helped it to reach Domestic and International customers with just a click option. 

As a result, MDL is not inclined to spend for retail stores/showrooms, or a distribution system. Its brand "MISH" represents contemporary women's fashion label specializing in affordable western and indo-western wear with strong global digital presence and has been able to sell over 2.5 lakhs product through E-Commerce platforms since Financial Year 2017-18. It has established strong network with prominent E-Commerce players such as Myntra, Nykaa Fashion, Ajio and Tata Cliq. The company also sold products on other e-platform like Namshi (through third party). 

MDL has currently focus on generating sales through E-commerce platforms of major players and through own website i.e. "mishindia.com". As of June 30, 2023, it had 58 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 800000 equity shares of Rs. 10 each with a fixed price of Rs. 122 per share to mobilize Rs. 9.76 cr. The issue opens for subscription on October 31, 2023, and will close on November 02, 2023. The minimum application to be made is for 1000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 28.57% of post-IPO paid-up capital of the company. MDL is spending Rs. 1.37cr. for this IPO process and from the net proceeds, it will utilize Rs. 5.51 cr. for working capital, Rs. 1.05 cr. for branding and marketing initiatives, and Rs. 1.83 cr. for general corporate purposes. 

Aryaman Financial Services Ltd. is the sole lead manager and KFin Technologies Ltd. is the registrar of the issue. Nikunj Stock Brokers Ltd. is the market maker for the company. 

Having issued most of the equity shares at par value, the company issued further equity shares at a fixed price of Rs. 120 per share in November 2020. It has also issued bonus shares in the ratio of 3 for 1 in March 2023. The average cost of acquisition of shares by the promoters is Rs. 6.57 per share. 

Post-IPO, MDL's current paid-up equity capital of Rs. 2.00 cr. will stand enhanced to Rs. 2.80 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 34.16 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted total revenue/net profit of Rs. 4.19 cr. / Rs. 0.001 cr. (FY21), Rs. 7.31 cr. / Rs. 0.05 cr. (FY22), and Rs. 11.12 cr. / Rs. 0.61 cr. (FY23). For Q1 of FY24 ended on June 30, 2023, it earned a net profit of Rs. 0.11 cr. on a total revenue of Rs. 2.27 cr. Boosted top and bottom lines for FY23 not only raise eyebrows, but also concern over its sustainability going forward. Such pre-IPO performance is nothing but a window dressing to fetch fancy valuations. 

For the last three fiscals, MDL has reported an average EPS of Rs. 2.98, and an average RoNW of 17.15%. The issue is priced at a P/BV of 10.64 based on its NAV of Rs. 11.47 per share as of June 30, 2023, and at a P/BV of 2.83 based on its post-IPO NAV of Rs. 43.05 per share. 

If we attribute annualized FY24 earnings to the post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 75.31, thus the issue is greedily priced. 

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 offer document, the company has shown Family Care Hospitals, Shalby, KMC Speciality, Global Longlife as their listed peers. They are trading at a P/E of 7.59, 29.93, 48.65 24.71 (as of October 27, 2023). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 18th mandate from Aryaman Financial in the last three fiscals (including the ongoing one. Out of the last 10 listings, 1 opened at discount, 2 at par and the rest with premiums ranging from 0.29% to 27.18% on the day of listing. Thus it has below average track record.