Prevest Denpro BSE SME IPO review (May apply)

•    PDL is in the dental diagnosing, treating material business.
•    It marked 60.24% revenue from exports for FY21. 
•    Super performance in pandemic year raises eyebrows.
•    Comparison with MNC listed company as a peer is just an eyewash. 
•    Based on FY21 earnings, the issue appears reasonably priced.

ABOUT COMPANY: 
Prevest Denpro Ltd. (PDL) develops, manufactures and markets a comprehensive portfolio of dental materials for diagnosing, treating and preventing dental conditions as well as improving the aesthetics of the human smile. The breadth and depth of its product offerings address the majority of the dentists' clinical needs for consumable dental materials. PDL's product portfolio covers a wide spectrum of materials for endodontics, prosthodontics, orthodontics, periodontics, restorative dentistry, aesthetic dentistry and laboratory consumables. It supplies its products in over 75 countries through 91 agents and its export revenue contributed around 60.24% for FY21. On the domestic front, it has a network of 53 dealers across 16 states and 2 Union Territories in India. 

ISSUE DETAILS/CAPITAL HISTORY: 
To part finance its plans for purchase of machinery/equipment for proposed additional manufacturing line and R & D unit (Rs. 18.02 cr.) and General corpus fund needs, PDL is coming out with a maiden IPO of 3168000 equity shares of Rs. 10 each via book building route to mobilize Rs. 26.61 cr. at the upper cap. The company has fixed the price band of Rs. 82 - Rs. 84 per share. The issue opens for subscription on September 15, 2021, and will close on September 17, 2021. Minimum application is to be made for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.39% of the post issue paid-up capital of the company. 

The issue is solely lead managed by Hem Securities Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Hem Finlease Pvt. Ltd. will be the market maker for this issue. 

The company's entire equity so far is issued at par. It has also issued bonus shares in the ratio of 30 for 1 in April 2021. The average cost of acquisition of shares by the promoters is Rs. 0.32 and Rs. 0.33 per share. 

Post issue, PDL's current paid-up equity capital of Rs. 8.84 cr. will stand enhanced to Rs. 12.00 cr. At the upper cap, PDL is looking for a market cap of Rs. 100.83 cr.  

FINANCIAL PERFORMANCE: 
For the last three fiscals, PDL has posted turnover/net profits of Rs. 19.77 cr. / Rs. 2.99 cr. (FY19), Rs. 24.56 cr. / Rs. 5.01 cr. (FY20) and Rs. 29.51 cr. / Rs. 7.44 cr. (FY21). Last fiscal's performance is surprising as it is for the pandemic period. 

PDL has posted an average EPS of Rs. 6.67 and an average RoNW of 32.11% for the last three fiscals. The issue is priced at a P/BV of 3.26 based on its NAV of Rs. 25.75 as of March 31, 2021. If we attribute FY21 earnings on fully diluted post issue equity, then the asking price is at a P/E of around 13.55, making this offer reasonably priced. However, with the recent mega bonus issue, its coffers are left with mere reserves. 

DIVIDEND POLICY:
The company has not paid any dividend in the last three fiscals and till the filing of this IPO RHP. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer documents, it has shown 3M India as its listed peer. It is quoting at a P/E of 125.43 (as of September 09, 2021 closing). Its comparison with MNC giant appears to be an eyewash. Even otherwise, PDL does not match the scale of 3M India on any parameters. They are not truly comparable on an apple to apple basis. 

MERCHANT BANKER'S TRACK RECORDS:
This is the 11th mandate from Hem Securities in the last three fiscals (including the ongoing one). Out of the last 10 listings, 1 opened at discount, 3 at par and the rest at premiums ranging from 0.04% to 37.25% on the listings dates.