Organic Recycling BSE SME IPO review (May apply)

•    ORSL is a technology-driven solutions provider for MSW projects. 
•    It suffered setback for FY21 and FY22 following the pandemic impact.
•    It turned the corner in FY23 and is indicative of prospects lying ahead.
•    Based on FY23 earnings, the issue appears aggressively priced. 
•    Well-informed/cash surplus investors may park funds for the medium to long-term rewards.

ABOUT COMPANY:
Organic Recycling Systems Ltd. (ORSL) is an engineering company focused on environmental solutions and provides waste management solutions across waste types and across the value chain. The Company has been a forerunner in providing sustainable waste management solutions in India since 2008. Incorporated by technocrats, its focus primarily has been on developing robust, cost-effective & environment-friendly technologies that are simple to operate. It has proven technology and capability of successfully running one of India's first Waste to Energy (WTE) plants developed on anaerobic bio methanation technology.

The anaerobic bio methanation technique has been recognized as a promising technology as per the National Master Plan issued by the Government of India, it has also set up an MSW processing and disposal plant in Solapur, Maharashtra to convert Municipal Solid Waste (MSW) into electricity and compost. The plant has been operational since 2013 with the plant being recognized as one of the case studies for best practices for MSWM under the Swachh Bharat Mission and various other reports. 

With the data collected over the years, the company is now a front-runner for various EPC opportunities in the country and therefore providing solutions encompassing the entire value chain for waste management. Its Business verticals include the Build Own Operate Transfer (BOOT) model, Engineering Procurement and Commissioning (EPC) model, and Supply of key equipment.

Waste Management is a very huge opportunity in India due to its demographics and consumption pattern. The sector is in its growth stage with very few players having the right technology and capability to provide sustainable solutions. Hence the company is determined to enter into and become one of the leading technology and service providers in mitigating waste management challenges by promoting sustainable technological innovations right from door-step and community-level solutions to large-scale end-to-end infrastructure solutions for municipal waste management.

Its projects are implemented keeping in the mind positive social impact on the environment and well-being of society at large. Driven by principles of circular economy, ORSL is committed to recovering maximum resources from waste thereby reducing the burden on landfills. As of the date of filing this offer document, it had 36 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 2500200 equity shares of Rs. 10 each at a fixed price of Rs. 200 per share to mobilize Rs. 50.00 cr. The issue opens for subscription on September 21, 2023, and will close on September 26, 2023. The minimum application to be made is for 600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 32.47% of the post-IPO paid-up capital of the company. ORSL is spending Rs. 2.02 cr. for this IPO process, and from the net proceeds, it will utilize Rs. 37.50 cr. for reducing outstanding borrowings, Rs. 10.48 cr. general corporate purposes. 

Arihant Capital Markets Ltd. Is the sole lead manager and Maashitla Securities Pvt. Ltd. Is the registrar of the issue. Arihant Capital Markets is also the market maker for the company. 

Having issued/converted initial equity capital at par value, the company issued further equity shares at a fixed price of Rs. 160 per share in October 2022. It has also issued bonus shares in the ratio of 300 for 1 in September 2023. The average cost of acquisition of shares by the promoters is Rs. 0.03 per share. 

Post-IPO, ORSL's current paid-up equity capital of Rs. 5.20 cr. will stand enhanced to Rs. 7.70 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 153.99 cr. 

If we attribute FY23 earnings to the post-IPO paid-up capital of the company, then the asking price is at a P/E of 42.11. Thus the issue appears aggressively priced.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, ORSL has posted a total income/net profit, - (loss) of Rs. 15.78 cr. / Rs. - (4.49) cr. (FY21), Rs. 17.57 cr. / Rs. - (5.35) cr. (FY22), and Rs. 25.34 cr. / Rs. 3.65 cr. (FY23). According to the management, losses for FY21 and FY22 are attributed to the impact of the Pandemic and the turnaround for FY23 indicates the prospects ahead. The company is having negotiations with many PSUs to take forward "Swachchata Abhiyan" of the Government of India. 

For the last three fiscals, ORSL has reported an average EPS of Rs. - (1.81), and an average RoNW of NIL%. The issue is priced at a P/BV of 4.08 based on its NAV of Rs. 49.05 as of March 31, 2023, and at a P/BV of 2.04 based on its NAV of Rs. 97.86 per share. 

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 42.19. Thus the issue appears aggressively priced.

For the last three fiscals, the company posted PAT margins of - (35.87) % (FY21), - (36.59) % (FY22), and 14.78% (FY23). For the corresponding periods, its RoE stood at - (28.64%), - (49.67) %, and 21.76% respectively. The turnaround for FY23 is having the impact of recent high-margin contracts. 

DIVIDEND POLICY:
The company has not declared any dividends for any financial year so far. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

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

MERCHANT BANKER'S TRACK RECORD:
This is the first mandate from Arihant Capital in the last three fiscals (including the ongoing one). Thus it has no track records for the recent past.