Mono Pharmacare NSE SME IPO review (May apply)

•    MPL is currently in distributorship of pharma products from giant companies.
•    It has marked growth in its top and bottom lines for the reported periods.
•    The partnership firm was converted into a public limited company on October 17, 2022.
•    Based on FY23 numbers, the IPO is aggressively priced.
•    Well-informed investors may park funds for the medium to long-term rewards.

ABOUT COMPANY:
Mono Pharmacare Ltd. (MPL) the company that was originally formed as a partnership firm by the name and style "Mono Chemist" in May 1994, was converted into a public limited company on October 17, 2022, post 100% partnership acquisition (in July 2019) by the new management. In order to expand its product portfolio, MPL also acquired a proprietorship company DLS Export (of the new promoters) in December 2022. 

Currently, MPL is engaged in the business of marketing pharmaceutical products and is also a distributor of various pharmaceutical companies. It works with various contract manufacturers who manufacture pharmaceutical products on its behalf based on compositions given by it and subsequently, MPL sells those products under the brand "DLS Export". 

As of February 28, 2023, it is dealing (as distributors and stockists) with 168 pharmaceutical companies and also, is also connected with 3,036 Customers/vendors who are a mix of retail pharmacy stores as well as wholesalers. At present, it is doing business in both business segments only in the western region of Gujarat, particularly in Ahmedabad city. With acquisitions of other group partnership/proprietorship concerns, MPL is currently in the business of pharma/nutraceuticals/personal care products. As of July 31, 2023, it had 82 employees on its payroll. 

According to the management, the company is in the marketing and distributorship business under the B2B category and does not have any manufacturing plant at present, but it has plans to go into manufacturing activities too in the near term. It has some strategic warehouses to store the products for marketing. Besides third-party products, it is also selling its own brand with a portfolio of about 120 products. With third-party contracts, the company is following an asset-light business strategy. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 5300000 equity shares of Rs. 10 each via a book-building route. It has announced a price band of Rs. 26 - Rs. 28 per share and mulls mobilizing Rs. 14.84 cr. at the upper cap of the price band. The issue opens for subscription on August 28, 2023, and will close on August 30, 2023. The minimum application to be made is for 4000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 30% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO funds, it will utilize Rs. 8.98 cr. for working capital, and the rest for general corporate purposes.  

After reserving 276000 equity shares for the market maker, the company has allocated not more than 10% for QIBs, not less than 45% for HNIs and not less than 45% for Retail investors. 

Unistone Capital Pvt. Ltd. is the sole lead manager and Bigshare Services Pvt. Ltd. is the registrar of the issue. Rikhav Securities Ltd. is the market maker for the company. 

Having issued initial equity shares at par value, the company converted further equity shares at a price of Rs. 12 per share in January 23 and has also issued 527520 bonus shares (approx. ratio of 0.0555 shares for every 1 share held) in February 2023. The average cost of acquisition of shares by the promoters is Rs. 9.47, and Rs. 10.73 per share. 

Post-IPO, MPL's current paid-up equity capital of Rs. 12.37 cr. will stand enhanced to Rs. 17.67 cr. Based on the upper price band the company is looking for a market cap of Rs. 49.47 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last two fiscals, MPL has posted a turnover/net profit of Rs. 28.38 cr. / Rs. 0.10 cr. (FY21), and Rs. 37.10 cr. / Rs. 0.35 cr. (FY22). For two broker periods of FY23, it has posted a turnover/net profit of Rs. 25.47 cr. / Rs. 0.29 cr. (from 01.04.22 to 16.10.22) and Rs. 33.15 cr. /Rs. 0.94 cr. (from 17.10.22 to 31.03.23). Thus for the combined periods of FY23, it has earned a net profit of Rs. 1.23 cr. on a turnover of Rs. 58.61 cr.

For the last three fiscals, it has reported an average EPS of Rs. 1.28 and an average RoNW of 7.67%. The issue is priced at a P/BV of 1.41 based on its NAV of Rs. 19.92 as of March 31, 2023, and at a P/BV of 1.19 based on its post-IPO NAV of Rs. 23.44 per share (at the upper cap).  

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 40. Thus the issue appears aggressively priced discounting near-term positives.

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, MPL has shown Chandra Bhagat Pharma as their listed peer. It is trading at a P/E of 110.83 (as of August 24, 2023). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 11th mandate from Unistone Capital 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 10% to 270.40% on the date of listing.