Northern Spirits BSE SME IPO review (May apply)

•    NSL is importer and distributor of leading international brand spirits.
•    It merged United Wines with it in April 2018 and thus added IMFL in its distribution basket.
•    Based on current earnings, the issue appears fully priced, but listed companies in this sector trades in the range of 13 to 62 P/Es.
•    Considering prospects for this segment, long term investment may be considered.

ABOUT COMPANY:
Northern Spirits Ltd. (NSL) started its operations in 2012 as Importer & Distributor of fine Alcoholic Beverages and is focused in imports of leading international brands such as William Grants ( Glenfiddich Single Malt, Grants Whisky, Monkey Shoulder Whisky, Balvenie Single Malt, Hendricks Gin), Bacardi Global ( Grey Goose Vodka, Bombay Sapphire Gin, Dewar's Whisky, Martini Vermouth), Shepherd Neame Beer, Amigos Beer, Carlo Rossi California Wines, Tomich Australian Wines, Cooper's Australian Beer, West Cork Irish Whiskey, Two Tree Gin, Reddot Wheat Beer, Aqua Riva Mexican Tequila & Organika Russian Vodka and are distributing the same in Northern Region – Delhi, North East, West Bengal and as a strategic move decided to integrate the business for better corporate governance and Compliance. In April 2018 it merged United Wines with it and has thus become a full-fledged distributor of IMFL.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its working capital and general corpus fund needs, NSL is coming out with a maiden IPO of 4302000 equity shares of Rs. 10 each at a fixed price of Rs.43 per share to mobilize Rs.18.50 Cr. Issue opens for subscription on 22.03.19 and will close on 27.03.19. Minimum application is to be made for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. Issue constitutes 26.80% of post issue paid up capital of the company.

The issue is solely lead managed by Finshore Management Services Ltd. while Cameo Corporate Services Ltd. is the registrar to the issue. Airan Finstocks Pvt. Ltd. is acting as a market maker for this issue. Having issued initial equity at par, NSL raised further equity in the price range of Rs. 38 to Rs. 53 between June 2.15 and July 2018. It has also issued bonus shares in the ratio of 1 share for every 1 share held in September 2018. The average cost of acquisition of shares by the promoters is Rs. 0.71, Rs. 4.38 and Rs.49.47 per share. Post issue NSL's current paid up equity capital of Rs. 11.75 cr. will stand enhanced to Rs. 16.05 cr.

FINANCIAL PERFORMANCE:
On the performance front, for the last three fiscals, NSL has posted turnover/net profits (loss) of Rs. 3.40 cr. / Rs. –(0.51)  cr. (FY16), Rs. 17.36 cr. / Rs. 0.53 cr. (FY17) and Rs. 25.89 cr. / Rs. 1.01 cr. (FY18). For the first half of the current fiscal (FY19) is has earned a net profit of Rs. 2.75 cr. on a turnover of Rs. 48.66 cr. For last six fiscals, NSL has posted an average EPS of Rs.10.94 and an average RoNW of 17.95% (on a pre-bonus basis for FY13-14 to FY17-18 and H1 on FY19 on non-annualize basis). The issue is priced at a P/BV of 1.50 on the basis of its NAV of Rs. 28.66 as on 30.09.18 and at a P/BV of 1.36 on the basis of post issue NAV of Rs. 31.70.

If we annualize latest earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 12.54.

COMPARE WITH LISTED PEERS:
As per offer documents, NSL has no listed peers to compare with. Thus NSL enjoys first mover tag in this segment. However, companies under this sector are currently trading at a P/Es of ranging between 13 and 62 (as on 15.03.19). This bandwagon included GM Breweries, Radico Khaitan and United Spirits.)

MERCHANT BANKER'S TRACK RECORD:
On merchant banker's front, this is the 10th mandate from its stable in last three fiscals. Out of 9 listings so far, 3 opened at discount, 1 at par (Mahip) and the rest with premiums ranging from 0.02% to 20.67% on the day of listings.