Popular Foundation BSE SME lPO review (Avoid)

•    The company is engaged in the construction activities with its comprehensive services.
•    The company marked growth in its top lines for the reported periods. 
•    The sudden boost in bottom lines for FY24 (pre-IPO year) raises eyebrows.
•    Based on FY24 super earnings, the issue relatively appears fully priced. 
•    There is no harm in skipping this "High Risk/Low Return" bet.

ABOUT COMPANY:
Popular Foundations Ltd. (PFL) is with over 25 years of experience, specializes in Engineering and Construction Activities, providing comprehensive end-to-end solutions in the construction sector. The company is dedicated to building practices catering to various verticals such as factories, educational institutions, commercial, and residential projects. However, it strategically directs its focus towards non-residential and non-governmental projects in the realm of civil construction in and around Chennai.

Equipped with expertise in Engineering, Architecture, and interior and exterior fit-outs, Popular Foundations has gained recognition among numerous educational institutions, industries, and commercial establishments in Tamilnadu. The company has successfully undertaken projects in Pondicherry, Tanjore, Bangalore, Trichy, Madurai, Vizhuppuram, Coimbatore besides Chennai. Its reputation is built on continued customer patronage, goodwill, and a commitment to delivering high-quality construction solutions.

While as of date the company has 86 employees on its payroll, it employs on an average 500+ employees at any given point of time. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 5370000 equity shares of Rs. 10 each at a fixed price of Rs. 37 per share to mobilize Rs. 19.87 cr. The issue opens for subscription on September 13, 2024, and will close on September 18, 2024. The minimum application to be made is for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.35% of the post-IPO paid-up equity capital of the company. The company is spending Rs. 1.99 cr. for this IPO process, and from the net proceeds, it will utilize Rs. 4.94 cr. for repayment/prepayment of certain borrowings, Rs. 11.86 cr. for working capital, and Rs. 1.08 cr. for general corporate purposes. 

The issue is solely lead managed by Srujan Alpha Capital Advisors LLP., while Bigshare Services Pvt. Ltd. Is the registrar to the issue and Spread X Securities Pvt. Ltd. Is the market maker for the company. 

Having issued initial equity shares at par, the company issued further equity shares at a price of Rs. 42 per share (based on FV of Rs. 10 per share), in September 2023 and October 2023. It has also issued bonus shares in the ratio of 99 for 1   in March 2012, 21 for 4in September 2023, and 1 for 1 in November 2023. The average cost of acquisition of shares by the promoters is Rs. 0.01, and Rs. 0.27 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 15.01 cr. will stand enhanced to Rs. 20.38 cr. Based on the RI pricing, the company is looking for a market cap of Rs. 75.40 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has reported a total income/net profit of Rs. 26.30 cr. / Rs. 0.48 cr. (FY22), Rs. 48.67 cr. / Rs. 1.20 cr. (FY23), and Rs. 51.91 cr. / Rs. 3.48 cr. The boosted bottom line for FY24 raises eyebrows and concern over its sustainability. 

For the last three fiscals, the company has posted an average EPS of Rs. 1.59, and an average RoNW of 10.78%. The issue is priced at a P/BV of 2.30 based on its NAV of 16.06 as of March 31, 2024, but missing its post-IPO NAV data in the offer document. 

If we attribute FY24 earnings to its post-IPO paid-up equity capital, then the asking price is at a P/E of 21.64. The issue relatively appears fully priced discounting all near term positives. 

For the reported periods, the company has posted PAT margins of 1.83% (FY22), 2.46% (FY23), 6.70% (FY24), and RoCE margins of 9.39%, 11.85%, 22.77% respectively for the referred periods. 

DIVIDEND POLICY:
The company paid a dividend of 20% for FY23 and 3% for FY24. It will adopt a prudent dividend policy post listing, based on its financial performance and future prospects.

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown NCC Ltd., and HCC Ltd., as their listed peers. They are trading at a P/E of 26, and NA (as of September 12, 2024). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 5th mandate from Srujan Alpha in the last four fiscals (including the ongoing one). Out of the last 3 listings, all opened with premiums ranging from 5.00% to 31.18% on the date of listing. Surprisingly, the said merchant banker also has a mandate of Sodhani Academy in which it has erred in its previous mandate data (refer P196 and 197 of Sodhani Prospectus and also P212 and 213 of Popular Foundation. Both these documents are filed on September 07, 2024, but rate of listing differs in both prospectuses for first two mandates).