MRP Agro BSE SME IPO review (Avoid)

•    The company is engaged in the business of trading food grains, coal and fly-ash.
•    It has shown super-profits for H1 FY21 against FY19 and FY20 earnings.
•    The issue is priced at a P/E of above 41 with the super performance of FY21 H1.
•    The segment is fragmented and is a highly competitive one.

PREFACE:
While we have seen secondary market galloping with a new milestone making history for the last three months, the primary market witnessed some activities for Main Board IPOs and few NCD and Rights issues during this period. However, we marked dry spell as far as SME IPOs are concerned as for NSE SME Listing we have seen the last IPO on 9th October 2020 from Bodhi Tree and for BSE SME Listing last IPO was on 18th November from Net Pix Shorts (Startup). For this scene, the structured process of IPOs and the poor faring of recent SME listings after the initial game have been attributed by the SME market operators.

ABOUT COMPANY:
MRP Agro Ltd. (MAL) is mainly engaged in the business of trading in food grains, coal and fly-ash including import and export of such products. The company works on B2 B business model.  

ISSUE DETAILS/CAPITAL HISTORY:
To meet its plans for working capital (Rs. 2.50 cr.) and general corpus fund (Rs. 0.53 cr.), MAL  is coming out with a maiden IPO of 810000 equity shares of Rs.10 each at a fixed price of Rs. 40 per share to mobilize Rs. 3.24 cr. The issue opens for subscription on February 08, 2021, and will close on February 10, 2021. Minimum application is to be made for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME platform.

The issue constitutes 27.19% of the post issue paid-up capital of the company. The company will be spending Rs. 0.21 cr. for this IPO process.

The issue is solely lead managed by Beeline Broking Ltd., while Skyline Financial Services Pvt. Ltd. is the registrar to the issue. Nikunj Stock Brokers Ltd. is acting as a Market Maker for this company.

Having issued initial equity at par, the company issued rights shares at a price of Rs. 25 and Rs. 26.64 between October 2019 and May 2020. It has also issued bonus shares in the ratio of 4 for 10 in September 2020. The average cost of acquisition of shares by the promoters is Rs. 13.66, Rs. 14.36 and Rs. 18.71 per share. Post issue, MAL's current paid-up equity capital of Rs. 2.17 cr. will stand enhanced to Rs. 2.98 cr. With this IPO, the company is looking for a market cap of Rs. 11.92 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last two fiscals, MAL has posted turnover/net profits of Rs. 18.73 cr. / Rs. 0.12 cr. (FY19) and Rs. 36.35 cr. / Rs. 0.19 cr. (FY20). For the first six months of FY21 ended on September 30, 2020, it has reported a net profit of Rs. 0.14 cr. on a turnover of Rs. 8.57 cr.

For the last two fiscals, the company has posted an average EPS of Rs. 2.88 and an average RoNW of 18.27%. The issue is priced at a P/BV of 2.18 based on its NAV of Rs. 18.33 as on September 30, 2020, and at a P/BV of 1.65 on its post-issue NAV of Rs. 24.22. Thus the issue is fully priced on these parameters. Its margins were just around 0.6% for FY19 and FY20 and are boosted to 1.66% for the first half of current fiscal i.e. IPO year (amidst lockdown for a major part of the period) which raises eyebrows.

If we annualize its super earnings of FY21 H1 and attribute it on fully diluted post issue equity capital then asking price is at a P/E of around 41.6 thus making it exorbitantly priced. Sustainability of such margins going forward is a major concern.  

COMPARISION WITH LISTED PEERS:
As per offer documents, MAL has no listed peers to compare with.

MERCHANT BANKER'S TRACK RECORDS:
On merchant banker's performance front, this is the 7th mandate from its stable in the last three fiscals (including the ongoing one). Out of the last six listings, one opened at par while the rest at a premium of ranging from 1.37% to 10% on the day of listing.