Naturo Indiabull BSE SME IPO review (Avoid)

•    NIL that was originally incorporated for IT-related services/products.
•    It changed its name and business model for the food business. 
•    It has posted average financial performance so far. 
•    Hefty premium collected for further equity issues/conversion boosted its NAV.
•    The issue is priced greedily, there is no harm in ignoring it. 

PREFACE:
Of late we are witnessing fancy names for IPO-bound companies that are trying to lure investors with such names. They have no connection whatsoever with the name used. Recently we have seen Olatech IPO with "OLA" in its name. Now we have Naturo Indiabull with "INDIABULL" in its name. Both these companies have no connections with the brands or the group. Investors should not get carried away with such tactics. 

ABOUT COMPANY:
Naturo Indiabull Ltd. (NIL) erstwhile known as IT Indiabull Pvt. Ltd. was originally promoted for IT-related services but now it has entered into food processing with the change in name to the current one. It is in a highly competitive and fragmented segment. 

NIL was incorporated in the year 2016 and is into the business of Fast-Moving Consumer Goods (FMCG). At the time of incorporation, the main object was to carry on the business of software designing, development, customization, implementation, maintenance, testing, benchmarking, designing, developing, and dealing in computer software and solutions and to develop, provide, undertake, design, import, export, distribute and deal in systems and application software for microprocessor-based information system, offshore software development projects, BPO services, internet service provider, e-trading, website application solutions software enterprise, resource planning, e-commerce, value-added products, and other business applications.

However, from November 2019, it changed its object clause to carry on the business of garments, textiles, jewelry, FMCG, Real Estate, Stone-Mines, Herbal Products, Automobile, Printing, Share Trading, providing education, Agriculture Seeds and Fertilizers, Hospitality and Food items through Directly and/or through the network of members, consultants, bonafide commission agents, franchises, associates and distributors of multi-level marketing through network publicity, market research analysis, surveys, organizing events, contest, seminar and other advertising and related outdoor activities, as it found that to be more advantageous and profitable.

The Company is in the business of trading various health products and kits including Sanitary Towels, Sanitary Napkins, hand sanitizer, other health kits, etc. Now the Company is diversifying its products to various health and herbal products like juices, soaps, shampoos, medicines, tablets, etc. under the name and style of Naturo Indiabull Limited. The Company has started the distribution of Samples. It purchases the goods from various manufacturers and sells them in its own brand both directly to wholesalers and also through agents. Its areas of operations currently are Jaipur, Rajasthan. As of the date of filing this offer documents, it had 9 employees on its payroll. 

The company is currently dependent on third-party supply and is also liable to frequently changing government policies. 

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 9.57 cr.), general corporate purposes (Rs. 1.00 cr.), NIL is coming out with a maiden IPO of 3640000 equity shares of Rs. 10 each at a fixed price of Rs. 30 per share to mobilize Rs. 10.92 cr. The issue opens for subscription on August 22, 2022, and will close on August 24, 2022. Minimum application is to be made for 4000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 35.69% of the post-IPO paid-up capital of the company. NIL is spending Rs. 0.35 cr. for this IPO process. 

The issue is solely lead-managed by Finshore Management Services Ltd., Link Intime India Pvt. Ltd. is the registrar to the issue.  Nikunj Stock Brokers Ltd. is a market maker for this IPO. 

Having raised initial equity at par and the company has issued/converted further equity in the price range of Rs. 260 - Rs. 290 per share between December 2020 and February 22. It has also issued bonus shares in the ratio of 15 for 1 in February 2022. The average cost of acquisition of shares by the promoters is Rs. 8.86 and Rs. 17.31 per share. 

Post-IPO, NIL's current paid-up equity capital of Rs. 6.56 cr. will stand enhanced to Rs. 10.20 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 30.59 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, for the last three fiscals, NIL has posted turnover/net profits of Rs. 8.02 cr. / Rs. 0.79 cr. (FY20), Rs. 7.01 cr. / Rs. 0.75 cr. (FY21) and Rs. 11.45 cr. / Rs. 1.09 cr. (FY22). It has shown inconsistency in its top and bottom lines. 

For the last three fiscals, NIL has reported an average EPS of Rs. 3.16 and an average RoNW of 25.01%. The issue is priced at a P/BV of 1.55 based on its NAV of Rs. 19.30 as of March 2022 but the offer documents are silent on its post-IPO NAV details. Thanks to hefty premiums collected on conversion and further issuance of equity shares that boosted its NAV as of March 31, 2022.  

If we attribute FY22 higher earnings on post IPO fully diluted paid-up equity capital, then the asking price is at a P/E of around 28.03 making it a greedily priced IPO with concern over the sustainability of margins reported. 

COMPARISON WITH LISTED PEERS:
As per the offer document, NIL has no listed peers to compare with.  

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of offer documents. It will adopt a prudent dividend policy post-listing based on its financial performance and future prospects. 

MERCHANT BANKER'S TRACK RECORDS:
This is the 28th mandate from Finshore Management in the last five 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 0.9% to 150% on the day of listings. Thus it has an average track record.