Modis Navnirman BSE SME IPO review (Avoid)

•    MNL is in a highly competitive real estate segment. 
•    Its financial data is non-illusive and does not match the asking price. 
•    Issue is exorbitantly priced based on its super earnings for FY22.
•    Following a small equity base, longer gestation for migration to the mainboard.
•    There is no harm in skipping this greedily priced issue. 

ABOUT COMPANY: 
Modi's Navnirman Ltd. (MNL) is engaged in the real estate sector. Since its inception, it has been focusing on the mid-market and affordable housing categories as its target segment within the residential housing market. The mid-market and affordable housing categories have accounted for a significant share of overall market absorption in India in recent years

It currently has five Ongoing and five Upcoming projects, which are expected to provide an estimated total Carpet Area of 5.88Lakhs square feet. As of April 30, 2022, on a consolidated basis, it had 11 employees on the payroll of the Company.

MNL's Projects have been currently located in the western suburbs of Mumbai specifically in and around the areas of Borivali, Kandivali, Malad and Goregaon. Going forward it plans to establish a presence in the other regions in Mumbai and intends to execute projects in other major cities. 

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for investment in subsidiary company SMNPL (Rs. 17.79 cr.), general corporate purposes (Rs.4.21 cr.), MNL is coming out with a maiden IPO of 1260000 equity shares of Rs. 10 each at a fixed price of Rs. 180 per share to mobilize Rs. 22.68 cr. The issue opens for subscription on June 23, 2022, and will close on June 28, 2022. Minimum application is to be made for 800 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 29.79% of the post-IPO paid-up capital of the company. MNL will spend Rs. 0.68 cr. for this IPO process. 

The issue is solely lead managed by Aryaman Financial Services Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Aryaman Capital Markets Ltd. is the market maker for the issue. 

Post-IPO, MNL's current paid-up equity capital of Rs. 2.97 cr. will stand enhanced to Rs. 4.23 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 76.14 cr. 

The company has issued its entire equity capital at par so far. The average cost of acquisition of shares by the promoters is Rs. 10 per share. 

FINANCIAL PERFORMANCE: 
On the financial performance front, for the last three fiscals, MNL has posted turnover/net profits of Rs. 21.95 cr. / Rs. 1.40 cr. (FY20), Rs. 13.22 cr. / Rs. 0.38 cr. (FY21) and Rs. 11.51 cr. / Rs. 1.33 cr. (FY22). While its top line has shown a decline for the reported periods, its bottom line marked inconsistency with spectacular earnings on the declined top line that raises eyebrows. It is operating in a highly competitive and fragmented market segment. The sustainability of such profits amidst uncertain ongoing trends is a major concern.

For the last three fiscals, it has posted an average EPS of Rs. 3.44 and an average RoNW of 29.51%. The issue is priced at a P/BV of 14.02 based on its NAV of Rs. 12.84 as of March 31, 2022, and at a P/BV of 2.87 based on its post-IPO NAV of Rs. 62.63. 

If we attribute FY22's super earnings on fully diluted post-issue paid-up equity capital, then the asking price is at a P/E of 57.32. Thus the issue is greedily priced at an exorbitant level.  

DIVIDEND POLICY:
The company has not declared any dividend 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, MNL has shown Arihant Superstructures, KBC Global, Ajmera Realty, Hubtown, Godrej Properties, Macrotech Developers and Vascon Engineers as its listed peers. They are currently trading at a P/E of 12.67, 13.93, 20.23, 00, 62.71, 44.34 and 13.77 (as of June 20, 2022). However, they are not truly comparable on an apple-to-apple basis. Its comparison with giants like Godrej Properties and Macrotech Developers is a bit surprising. 

MERCHANT BANKER'S TRACK RECORDS:
This is the 19th mandate from Aryaman Financial in the last four fiscals (including the ongoing one). Out of the last 10 listings, 1 opened at a discount and the rest with premiums ranging from 0.02% to 6.81% on the debut day. Thus it has an average track record.