Pearl Green Clubs BSE SME IPO review (Avoid)

•    PGCRL is in the business of Agri products trading.
•    It mulls diversification into the hospitality segment, which has yet to take off.
•    Based on super earnings for 9M-FY22, IPO is priced exorbitantly. 
•    It appears, that PGCRL is trying to milk the cow under the hospitality banner.
•    Investors should stay away from such greedily priced issues. 

ABOUT COMPANY:
Pearl Green Clubs & Resorts Ltd. (PGCRL) is currently in the Business of agricultural and allied activities. It is engaged in the trading of Agricultural Products such as Wheat Corn, Rice, seed Cotton, Gram, Pulses, Cereals Peas etc. It strives to provide a seamless bond between the Farmers, Private players and consumers to ensure that the Indian markets for agricultural products continue to flourish. 

The company is proposing to enter into the business of Tourism and Hospitality. It has proposed to open a resort in the name of Pearl Green Clubs and Resort in Gandhinagar, Gujarat. The property is located at Gandhinagar which is approximately 20 km away from Ahmedabad. It is connected to the NH-8 highway. As of the date of filing of this offer documents, PGCRL had 7 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 8.77 cr.) and general corporate purposes (Rs. 2.35 cr.), PGCRL is coming out with a maiden IPO of 630000 equity shares of Rs. 10 each at a fixed price of Rs. 186 per share to mobilize Rs. 11.72 cr. The issue opens for subscription on June 27, 2022, and will close on June 29, 2022. 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 26.69% of the post-IPO paid-up capital of the company. PGCRL is spending Rs. 0.60 cr. for this IPO process. 

The issue is solely lead managed by Fast Track Finsec Pvt. Ltd. and Cameo Corporate Services Ltd. is the registrar to the issue. Nikunj Stock Brokers Ltd. is the market maker for this IPO. 

Having issued initial equity at par, PGCRL converted further equity shares at a price of Rs. 40 per share in February 2021. The average cost of acquisition of shares by the promoters is Rs. 39.37 and Rs. 39.45 per share. 

Post-IPO, PGCRL's current paid-up equity capital of Rs. 1.74 cr. will stand enhanced to Rs. 2.37 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 44.04 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, PGCRL has posted a turnover/net profit (loss) of Rs. NIL / Rs. - (0.001) cr. (FY19), Rs. 0.57 cr. / Rs. 0.04 cr. (FAY20) and Rs. 3.76 cr. / Rs. 0.07 cr. (FY21). For the first nine months of FY22 ended on December 31, 2021, it has earned a net profit of Rs. 0.62 cr. on a turnover of Rs. 4.47 cr. The sustainability of such margins going forward raises concern.

For the reported financial periods, PGCRL has posted an average EPS of Rs. 3.92 and an average RoNW of 12.36%. The issue is priced at a P/BV of 4.30 based on its NAV of Rs. 43.28 as of December 31, 2021, and at a P/BV of 2.29 based on its post-IPO NAV of Rs. 81.26.

If we annualize FY22 super earnings and attribute it to post IPO fully diluted paid-up equity capital, then the asking price is at a P/E of around 53.60. While its hospitality project has yet to take off, it is trying to milk the cow with its name and that too at an exorbitant price. 

DIVIDEND POLICY:
The company has not declared any dividend in the reported financial periods. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, PGCRL has shown White Organic Retail as its listed peer. It is currently trading at a P/E of 90.2 (as of June 20, 2022). However, it is not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORDS:
This is the 8th mandate from Fast Track in the last five fiscals (including the ongoing one). Out of the last 7 listings, 2 opened at a discount, 1 at par and the rest with premiums ranging from 8.85% to 27.93% on the debut day.