QVC Expo NSE SME IPO review (May apply)

•    The company is engaged in dealing in ferro alloys and raw materials for steel manufacturing.
•    The company posted growth in its top and bottom lines for the reported periods.
•    The quantum jump in its top and bottom line for FY24 raised eyebrows.
•    Based on FY24 earnings, relatively the issue appears aggressively priced. 
•    Well-informed investors may park moderate funds for medium to long term.

ABOUT COMPANY:
QVC Exports Ltd. (OEL) is engaged in the business of dealing in ferro alloys, including but not limited to high carbon silico manganese, low carbon silico manganese, high carbon ferro manganese, high carbon ferro chrome and ferro silicon. It is also engaged in the dealing in raw materials for manufacturing of steel. It has devised a unique business model, wherein the company procures raw materials required for manufacturers of ferro alloys, such as, manganese ore, chrome ore, coke, and purchase their finished products, being varied categories of ferro alloys and further sell it to domestic and international steel manufacturers. It has created a unique inward and outward model, wherein it procures raw materials for a manufacturer and further sell the finished products of the same manufacturer, thereby creating a wide and reliable customer and supplier base and ability of serving manufacturers at different points of the steel supply chain. 

As on March 31, 2024, 82.95% of its revenue from operations was earned from export operations. Further, as of January 31, 2024, it exported its products to various countries, including but not limited to Taiwan, Japan, Bangaladesh, Vietnam, Thailand, Turkey, Afghanistan, Korea, Italy, Ukrain, United Kingdome, Belgium, Oman, etc. It imports manganese ore, manganese ore lumps from reputed miners and manufactures in Hong Kong and France. A majority of its revenue from operations is earned from exporting products to reputed steel manufacturers in various countries. 

It is also a supplier of ferro alloys for a lot of reputed Indian manufacturers and therefore in order to maintain such clientele, the company is bound to ensure that the products procured by it are of utmost quality and are compliant with the quality requirements of customers. It deploys independent inspection agencies such as Bureau Veritas, IRA, SGS etc. The company also follows up with customers to ensure that the products supplied to them is of utmost quality. 

Furthermore, our Company has devised an extensive supplier its commitments to customers.

As of the date of this offer document, it has domestic orders worth Rs. 29.59 cr. and export orders worth Rs. 49.41 cr. on hand. As of August 06, 2024, it had 15 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden/combo IPO of 2049600 fresh equity shares of Rs. 10 each (worth Rs. 17.63 cr.) and an Offer for Sale (OFS) of 748800 shares (worth Rs. 6.44 cr.). The overall size of the IPO will be 2798400 shares worth Rs. 24.07 cr. It has announced a fixed price of Rs. 86 per share. The issue opens for subscription on August 21, 2024, and will close on August 23, 2024. The minimum application to be made is for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.78% of the post-IPO paid-up capital of the company. The company is spending Rs. 2.80 cr. for this IPO process, and from the net proceeds, it will utilize Rs. 9.00 cr. for working capital, Rs. 1.09 cr. for repayment of unsecured loans, and the rest for general corporate purposes. 

The issue is solely lead managed by Khandwala Securities Ltd., and Cameo Corporate Services Ltd. is the registrar to the issue. Aftertrade Broking Pvt. Ltd. is the market maker for the company. The issue is underwritten 15% by Khandwala Secur., and 85% by Aftertrade Broking.

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 100 - Rs. 183 between March 2008 and March 2017. It has also issued bonus shares in the ratio of 5 for 1 in February 2022, and 1 for 1 in February 2024. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 0.18, Rs. 0.33, Rs. 0.70, Rs. 8.33, and Rs. 15.25 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 8.40 cr. will stand enhanced to Rs. 10.45 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 89.89 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 127.83 cr. / Rs. 0.91 cr. (FY22), Rs. 214.71 cr. / Rs. 1.72 cr. (FY23), Rs. 454.63 cr. / Rs. 3.93 cr. (FY24). The quantum jump in its top and bottom lines for FY24 raises eyebrows.

For the last three fiscals, it has reported an average EPS of Rs. 4.74, and an average RoNW of 12.39%. The issue is priced at a P/BV of 2.12 based on its NAV of Rs. 40.56 as of March 31, 2024, and at a P/BV of 1.66 based on its post-IPO NAV of Rs. 51.91 per share. 

If we attribute FY24 earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 22.87, and based on FY23 earnings, the P/E stands at 52.44. Thus the issue appears aggressively priced. 

For the reported periods, the company has posted PAT margins of 0.96% (FY22), 1.07% (FY23), 1.33% (FY24), and RoCE margins of 9.07%, 14.74%, 34.22% respectively for the referred periods. The PAT figures differs in KPI data on Page 46 and page 81 of the offer document.

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. 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:
This is the 4th mandate from Khandwala Securities in the last three fiscals (including the ongoing one), out of the last 3 listings, all listed with premiums ranging from 7.35% to 90% on the date of listing.