Piotex Ind BSE SME IPO review (May apply)

•    The company is engaged in contract manufacturing and trading of yarn, fabric and cotton bales.
•    FY 23 and FY24 bottom line appears to be a window dressing for fancy valuations.
•    The company is operating in a highly competitive and fragmented segment. 
•    It does not have its own manufacturing unit, which is the major concern.
•    Well-informed/cash surplus investors may park moderate funds for the medium term. 

ABOUT COMPANY:
Piotex Industries Ltd. (PIL) is in the business of contract manufacturing and trading of yarn, fabric and cotton bales. Its Products are used for various purposes such as garments & home furnishings, etc. It is engaged in trading of cotton bales. It also manufactures cotton yarns through out-sourcing model (Job-work) which are almost always in demand by the garment manufacturing industry. The company is operating in a highly competitive and fragmented segment. Since it operates on third party contracts, it has no own manufacturing unit, which is a big concern.

The company is engaged mainly in 2 activities:

1.    Trading of Cotton Bales, Synthetic Fiber, Cotton Yarn and Fabric: The company was established in Oct 2019, and till then the company has started trading business of Cotton Bales and Cotton Yarn in the textile hub of Maharashtra viz. Malegaon, Ichalkaranji and Bhiwandi. Also company supply the cotton yarn to Burhanpur and Ahmedabad. This business is already going on day to day, and also added fabric trading business from 2022-23. Also Company has a Sole Selling Agency agreement with Babasaheb Deshmukh Industries Private Limited for their finished product i.e. Cotton Yarn.

2.     In the same way company started manufacturing through job work and Fabric Weaving job in which company provides the Yarn to job workers and weaving unit and they do the process of weaving on contracted charges and return the finished goods. The finished goods i.e. Fabric is then sold to customers.

Its Business Process includes production & use of yarn during the manufacturing process. It endeavors to satisfy customers by continuous improvement through process innovation and quality maintenance. The company focuses on producing quality product to increase customer satisfaction and develop a positive brand image in the industry. As of March 31, 2024, it had 18 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 1539600 equity shares of Rs. 10 each at a fixed price of Rs. 94 per share to mobilize Rs. 14.47 cr. The issue opens for subscription on May 10, 2024, and will close on May 14, 2024. The minimum application to be made is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 30.17% of the post-IPO paid-up capital of the company. The company is spending Rs. 1.25 cr. for this IPO process, and from the net proceeds of the IPO, it will utilize Rs. 10.51 cr. for working capital, and Rs. 2.71 cr. for general corporate purposes. 

The issue is solely lead managed by Beeline Capital Advisors Pvt. Ltd., and Cameo Corporate Services Ltd. is the registrar of the issue. Beeline Group's Spread X Securities Pvt. Ltd. is the market maker for the company. 

Having issued initial equity capital at par the company issued further equity shares at Rs. 300 per share in July 2023, and has also issued bonus shares in the ratio of 31 for 2 in the same month. The average cost of acquisition of shares by the promoters is Rs. 5.26 per share.

Post-IPO, company's current paid-up equity capital of Rs. 3.56 cr. will stand enhanced to Rs. 5.10 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 47.97 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. Rs. 80.46 cf. / Rs.  0.74 cr. (FY22), Rs. 86.67 cr. / Rs. 2.89 cr. (FY23), and Rs. 118.94 cr. / Rs. 3.01 cr. (FY24). The sudden boost in bottom lines in pre-IPO year appears to be a window dressing for fancy valuations and raise concern.

For the last three fiscals, it has reported an average EPS of Rs. 8.63, and an average RoNW of 46.82%. The issue is priced at a P/BV of 3.73 based on its NAV of Rs. 25.17 as of March 31, 2024, and at a P/BV of 2.01 based on its post-IPO NAV of Rs. 46.75 per share.

If we attribute annualized FY24 super earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 15.96. Thus the issue appears fully priced. 

For the reported periods, the company has posted PAT margins of 0.93% (FY22), 3.36% (FY23), 2.54% (FY24), and RoCE margins for the referred periods is missing in the KPI data. 

DIVIDEND POLICY:
The company has not declared any dividends since incorporation. 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:
As per Chittorgarh.com data, this is the 38th mandate from Beeline Capital in the last three fiscals (including the ongoing one), out of the last 10 listings, all listed with premiums ranging from 5.88% to 200% on the listing date. However, the offer document is missing total mandates (fiscal wise) table.