Party Cruisers NSE SME IPO review (Avoid)

•    The company is engaged in wedding and other event management.
•    Based on financial parameters, the issue is aggressively priced.
•    Lead Manager has average track records.
•    Changed lifestyle post-COVID-19 is a major concern for the sustainability of the business.
•    There is no harm in avoiding investment in this pricy offer.

ABOUT COMPANY:
Party Cruisers Ltd. (PCL) is engaged in wedding management and events management business since its inception. It offers a complete variety of wedding and event facilities that included pre-wedding, during the wedding, post-wedding events that cover planning and marketing to production and décor etc. The company currently operates from Mumbai only with a headcount of 30.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans for expansion of business through strategic investments (Rs. 3.40 cr.), additional working capital (Rs. 3.50 cr.) and general corporate funds (Rs. 0.30 cr.) needs, PCL is coming out with a maiden Initial Public Offer (IPO) of 1520000 equity shares of Rs. 10 each at a fixed price of Rs. 51 per share to mobilize Rs. 7.75 cr. The issue opens for subscription on February 22, 2021, and will close on February 25, 2021. Minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 27.14% of the post issue paid-up capital of the company. PCL is spending Rs. 0.55 cr. for this issue process.

The issue is solely lead managed by First Overseas Capital Ltd. and KFin Technologies Pvt. Ltd. is the registrar to the issue. NNM Securities Pvt. Ltd. is a Market Maker for this issue.

Having issued initial equity at par, PCL issued further equity at Rs. 65 per share in April 2019. The company has also issued bonus shares in the ratio of 8 shares for 1 share held in June 2018. The average cost of acquisition of shares by the promoters is Rs. 0.52 and Rs. 1.79 per share.

Post issue, PCL's current paid-up equity capital of Rs. 4.08 cr. will stand enhanced to Rs. 5.60 cr. With the IPO pricing, the company is looking for a market cap of Rs. 28.56 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, PCL has posted turnover/net profits of Rs. 15.36 cr. / Rs. 1.48 cr. (FY18), Rs. 18.88 cr. / Rs. 1.93 cr. (FY19) and Rs. 15.89 cr. / Rs. 1.30 cr. (FY20). For the first half ended on September 30, 2020, it has earned a net profit of Rs. 0.15 cr. on a turnover of Rs. 1.71 cr.

For the last three fiscals, the company has posted an average EPS of Rs. 52.09 and an average RoNW of 17.63%. The issue is priced at a P/BV of 2.19 based on its Net Asset Value (NAV) of Rs. 23.26 and at a P/BV of 1.66 based on post issue NAV of Rs. 30.76.

If we annualize latest earnings and attribute it to fully diluted post issue equity, then asking price is at a P/E of around 94 thus making it a costly bet.

COMPARISION WITH LISTED PEERS:
As per the offer documents, the company has shown Touchwood Entertainment as its listed peers, which is currently trading at a negative P/E (as of 18.02.2021). However, it is not fully comparable on an apple to apple basis.

MERCHANT BANKER'S TRACK RECORD:
On merchant banker's front, this is the 16th mandate from its stable in last five fiscals (including the ongoing one). Out of last 7 listings, 1 opened at discount, 2 at par and the rest with a premium ranging from 1.40% to 25% on the day of listing. Out of these 7 listings, only 2 are trading at premiums, rest is at discount. (Refer page 203 of offer documents).