Rex Sealing BSE SME IPO review (May apply)

•    The company is engaged in a highly competitive and fragmented segment of sealing packaging and insulation products. 
•    It has posted inconsistency in its financial performance of the reported periods. 
•    Based on super profits of annualize FY23, the issue is fully priced. 
•    Small equity base post listing indicates longer gestation for migration to the main board.
•    Well-informed, cash surplus/risk seekers may consider parking funds. 
 
ABOUT COMPANY:
Rex Sealing and Packing Industries Ltd. (RSPIL) is a manufacturer and exporter of Sealing packing and Insulation products including Jointing Sheets, Fabric Expansion Joints, Gland packing & Ropes, High-Temperature resistant textiles, Ceramic Fiber Products, etc. This segment is highly competitive and fragmented. 

The products category of RSPIL includes Compressed Fibre Jointing Sheets / Gaskets, Gland Packing & Ropes, Fabric Expansion Joints, Technical and Heat Resistance Textiles, and Ceramic Fiber Products.

The company is in the process of setting up an additional manufacturing facility at Anand Nagar, MIDC Ambernath, for the expansion of business and manufacture of all types of "Asbestos Free" Gasket sheets for Automotive, Steel, and other process units. At present, it caters to domestic markets as well as international markets, limited to Gulf and Middle East countries. As of July 31, 2022, it has 29 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 599000 equity shares of Rs. 10 each at a fixed price of Rs. 135 per share to mobilize Rs. 8.09 cr. The issue consists of a fresh equity share issue of 300000 shares (worth Rs. 4.05 cr.), and an Offer for Sale (OFS) of 299000 equity shares (worth Rs. 8.04 cr.). The issue opens for subscription on December 30, 2022, and will close on January 04, 2023. The minimum number of shares to be applied is 1000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.98% of the post-issue paid-up capital of the company. RSPIL is spending Rs. 0.39 cr. for the fresh equity issue of Rs. 4.05 cr. From the residual proceeds, it will use Rs. 2.79 cr. for working capital and Rs. 0.87 cr. for general corporate purposes. For the entire issue proceeds, the company is spending Rs. 0.69 cr., indicating the fully structured nature of the IPO. 

The issue is solely Lead Managed by Aryaman Financial Services Ltd. and Bigshare Services Pvt. Ltd. is the registrar of the issue. Aryaman Capital Markets Ltd. is the Market Maker for the company. 

The company has issued entire equity shares at par so far and has also issued bonus shares in the ratio of 5 for 1 in March 2022. The average cost of acquisition of shares by the promoters is Rs. 1.67 per share.  

Post-IPO, the company's current paid-up equity capital of Rs. 1.92 cr. will stand enhanced to Rs. 2.22 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 29.97 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, RSPIL has posted a turnover/net profit of Rs. 20.18 cr. / Rs. 1.13 cr. (FY20), Rs. 17.26 cr. / Rs. 0.37 cr. (FY21), and Rs. 21.16 cr. / Rs. 0.55 cr. (FY22). For the Q1 of FY23 ended on June 30, 2022, it earned a net profit of Rs. 0.38 cr. on a turnover of Rs. 5.72 cr. The sudden boost in net profits of Q1FY23 raises eyebrows.

For the last three fiscals, the company has reported an average EPS of Rs. 3.05 and an average RoNW of 7.49%. The issue is priced at a P/BV of xx based on its NAV of Rs. 44.89 as of June 30, 2022, and at a P/BV of xx based on its post-IPO NAV of Rs. 57.07 per share. Thus it posted inconsistency in its top and bottom lines. 

If we annualize FY23 super earnings and attribute them to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 19.62. Based on FY22 earnings, the issue is at a P/E of 54.43. Thus the issue is aggressively priced on the basis of FY22 earnings and fully priced on the basis of super earnings for Q1FY23. 

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:
This is the 16th mandate from Aryaman Financial in the last three fiscals (including the ongoing one). Out of the last 10 listings, 2 opened at par and the rest with premiums ranging from 0.02% to 27.18% on the day of listing.