Quality RO BSE SME IPO review (Avoid)

•    This IPO comes with just 62 days' working details post-incorporation.
•    QRIL's financial data has no match for the asking price.
•    The issue is exorbitantly priced at a P/E above 113.
•    Low paid-up equity post IPO indicates a longer gestation period for mainboard migration.
•    Simply stay away from this greedily priced offer. 

ABOUT COMPANY:
Quality RO Industries Ltd. (QRIL) is engaged in the business of manufacturing, marketing and supplying components for water purifiers and softener equipment. These water purifier parts have been designed to make a proper fitting for RO Plants and Systems of different varieties, as the company produces strictly according to industry standards.

As of November 30, 2021, QRIL has just 7 employees at the Registered Office including directors.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans for capital expenses (Rs. 1.40 cr.), working capital needs (Rs. 0.50 cr.) and general corporate purpose (Rs. 0.24 cr.), QRIL is coming out with a maiden IPO of 530000 equity shares of Rs. 10 each at a fixed price of Rs. 51 per share to mobilize Rs. 2.70 cr. The issue opens for subscription on January 27, 2022, and will close on February 01, 2022. Minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 27.46% of the post issue paid-up capital of the company. QRIL is spending Rs. 0.56 cr. for this IPO process. This expense indicates funding arrangements by the merchant bankers for at least a one-time full subscription. 

The issue is solely lead managed by Shreni Shares Pvt. Ltd. and Skyline Financial Services Pvt. Ltd. is the registrar to the issue. Shreni Shares Pvt. Ltd. is also acting as a market maker for this company. 

Having issued initial equity at par, the company issued further equity at a price of Rs. 82 per share in November 2021. It has also issued bonus shares in the ratio of 6 for 1 in the said month. The average cost of acquisition of shares by the promoters is Rs. 11.13 per share. 

Post-IPO, QRIL's current paid-up equity capital of Rs. 1.40 cr. will stand enhanced to Rs. 1.93 cr. Based on the IPO price, the company is looking for a market cap of Rs. 9.84 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, for the FY22, QRIL has reported only 62 days working post its incorporation. For the period from September 30, 2021, to November 30, 2021, it has earned a net profit of Rs. 0.02 cr. on a turnover of Rs. 0.17 cr. 

As proprietorship entity, for the last three fiscals, it has posted turnover/net profits of Rs. 1.24 cr. / Rs. - (0.06) cr. (FY19), Rs. 1.90 cr. / Rs. 0.01 cr. (FY20), Rs. 1.85 cr.  / Rs. 0.04 cr. (FY21).  

The issue is priced at a P/BV of 4.51 based on its NAV of Rs. 11.31 as of November 30, 2021, and at a P/BV of 2.64 based on its post-IPO NAV of Rs. 19.29. 

If we annualize FY22 earnings and attribute it to fully diluted post-IPO paid-up equity capital, then the asking price is at a P/E of 113 making it an exorbitantly priced offer. 

COMPARISON WITH LISTED PEERS:
As per offer documents, QRIL has no listed peers to compare with. 

DIVIDEND POLICY:
The company has not declared any dividend so far. It will adopt a prudent dividend policy post listing based on its financial performance and future prospects. 

MERCHANT BANKER'S TRACK RECORDS:
This is the 9th mandate from Shreni shares in the last three fiscals (including the ongoing one). Out of the last seven listings (Alkosign yet to be listed), 2 opened at par and the rest with premiums ranging from 0.68% to 19.05% on the day of listing. Thus the merchant banker has an average track record.