NAPS Global BSE SME IPO review (Avoid)

•    The company imports its textile products from China and Hong Kong and supplies it to its Indian customers.
•    It primarily deals in cotton and man-made fabrics on a B2B model.
•    It posted steady growth in its top lines for the reported periods.
•    The sudden jump in bottom lines from FY24 onwards raises eyebrows and concern over its sustainability. 
•    It is operating in a highly competitive and fragmented segment.
•    There is no harm in skipping this pricey and “High Risk/Low Return” bet.

ABOUT COMPANY:
NAPS Global India Ltd. (NGIL) is a wholesale importer of textile products and acts as an established player in the garment manufacturing supply chain in Maharashtra, India. It primarily imports cotton and man-made fabrics from manufacturers in China and Hongkong in bulk quantities and provide timely supply to vendors of garment manufacturing companies in Maharashtra, India. Man-made Textiles category with import of $1859 Mn has the largest share (34%) in the total imports ($ 5,425 Mn) during the period of April-October of FY 2024-25, as there is demand supply gap in this sector and NGIL has been able to develop strong procurement network in China and Hongkong and hence is in a unique position to be a sought-after supplier to manufacturers and their vendors who require man made and cotton fabrics for their downstream processes (Source: pib.gov.in).

The Company ― NGIL is a Mumbai based Company having its presence in the textile industry for more than a decade. The Company now embarks on being the public listed company with a vision to build a resonance with the stakeholders, establish presence PAN India and world-wide, to create and provide value to stakeholders and reach each corner of nation and serve in better way.

Its proficiency lies in understanding the specific requirement of customers and based on which it procures fabrics with trendy colour combination, designs, clothing material and quality. Its business is predominantly conducted on a business-to-business model basis. As of December 31, 2024, it had just 9 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 1320000 equity shares at a fixed price of Rs. 90 per share to mobilize Rs. 11.88 cr. The issue opens for subscription on March 04, 2025, and will close on March 06, 2025. The minimum number of shares to be applied is for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 29.80% of the post-IPO paid-up capital of the company. The company is spending Rs. 1.00 cr. for the equity issue, and from the net proceeds, the company will utilize Rs. 9.19 cr. for working capital, and Rs. 1.69 cr. for general corporate purposes. Higher spending for equity issue indicates funding arrangement and the issue is fully structured.

The IPO is solely lead managed by Aryaman Financial Services Ltd., Cameo Corporate Services Ltd., is the registrar to the issue. Aryaman group’s Aryaman Capital Markets Ltd. is the Market Makers for the company. The issue is underwritten to the tune of 94.55% by Aryaman Financial and up to 5.45% by Aryaman Capital.

Having issued entire initial equity shares at par value, the company has also issued bonus shares in the ratio of 110 for 1 in October 2023, and 75 for 111 in January 2024. The average cost of acquisition of shares by the promoters is Rs. NIL, and Rs. 3.98 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 3.11 cr. will stand enhanced to Rs. 4.43 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 39.87 cr. There is a goof-up in Capital Structure data on page no. 57 of the offer document.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 13.48 cr. / Rs. 0.18 cr. (FY22), Rs. 26.01 cr. / Rs. 0.27 cr. (FY23), and Rs. 47.88 cr. / Rs. 1.45 cr. (FY24). For 9M of FY25 ended on December 31, 2024, it earned a net profit of Rs. 1.53 cr. on a total income of Rs. 52.83 cr. The quantum jump in bottom lines from FY24 onwards raises eyebrows and concern over its sustainability. Higher trade receivables (Rs. 11.55 cr.) as of December 31, 2024, raises alarm. 

For the last three fiscals, the company has reported an average EPS of Rs. 4.08 and an average RoNW of 30.93%. The issue is priced at a P/BV of 5.24 based on its NAV of Rs. 17.17 as of December 31, 2024, and at a P/BV of 2.32 based on its post-IPO NAV of Rs. 38.87 per share. 

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 19.48. Based on FY24 earnings, the P/E stands at 27.44. Based on its recent earnings, prima facie, the issue relatively appears aggressively priced. 

For the reported periods, the company has posted PAT margins of 1.37% (FY22), 1.05% (FY23), 3.07% (FY24), 2.93% (9M-FY25), and RoCE margins of 30.35%, 42.62%, 47.47%, 38.42%, for the referred periods, respectively. 

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. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Alstone Textiles, and Soma Textiles, as their listed peers. They are trading at a P/E of 111, and 49.5 (as of February 27, 2025). However, they are not truly comparable on an apple-to-apple basis. This compare appears to be an eyewash.

MERCHANT BANKER’S TRACK RECORD:
This is the 17th mandate from Aryaman Financial in the last three fiscals.  Out of the last 10 listings, all listed at premiums ranging from 0.29% to 31.15% on the date of listing.