Rexpro Enterprises NSE SME lPO review (May apply)

•    The company is manufacturing and supplying diverse products for various purposes on B2B model.
•    It has good clientele as its regular customers on a Pan India basis.
•    The sudden boost in bottom lines from FY23 onwards raises eyebrows and concern over its sustainability.
•    Based on recent financial performance, the issue appears fully priced.
•    Well-informed investors may park funds for medium to long term.

ABOUT COMPANY:
Rexpro Enterprises Ltd. (REL) is a growing diversified product manufacturing company based out of Vasai, Maharashtra. It Started as a one stop solution to meet the furniture and fixture requirements for retailers and acquired clients across multiple retail segments such as fashion, lifestyle, electronics, grocery, beauty, telecom etc. It has made complete standalone stores, shop in shops, kiosks and displays for leading global brands and several of large Indian retailers. Further, given its multi-material manufacturing capability for customised products, the company has diversified into commercial and institutional furniture for offices, hospitals, government offices etc., and also the growing home segment. Further, it has developed industrial products like racks, cabinets and trolleys.

India has witnessed a high growth in the infrastructure sector in which roads and metros are an integral part. To enter and excel in this sector it is manufacturing sound barriers which are now installed on a few flyovers in Mumbai helping to reduce noise pollution and providing a better environment to the neighbourhood. It has also ventured into products with high potential such high precision double doors used at Metro stations (platform screen doors) for better safety and prevention of accidents at the stations. These have been conceptualised and manufactured in-house.

Given the boom of online retail and growth in the logistics sector, in its subsidiary, the company has undertaken the manufacturing of racking systems and fixtures catering specially to the warehousing industry. Its products are mainly made from wood and metal or a combination and it also uses various support materials like laminates, paints, acrylic, prints, solid surfaces, LEDs etc. for accessorising and finishing up to the final products. All processes are in house to ensure quality and adhere to timelines. 

It also undertakes turnkey projects for end to end solution which includes designing, manufacturing and installing all products required and offer such services across India. Its business model is B2B (Business-to-Business) and has clients from several business verticals owing to the diverse range of products it manufactures. While its manufacturing is all based out of Vasai, Maharashtra, REL services pan India requirements. Most of the clients it does business with have been regularly purchasing from it over the years and have also made REL their long term vendors. It caters to some large companies and brands such as Shoppers Stop Limited, One RX India Private Limited (Samsung), Hindustan Unilever, Lenskart, Marks & Spencer Reliance India Private Limited, and Godrej & Boyce Mfg. Co. Limited. As of September 30, 2024, it had 65 employees on its payroll, and additional 126 contract labourers in various departments. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden combo IPO of 3700000 equity shares at a fixed price of Rs. 145 per share of Rs. 10 each, to mobilize Rs. 53.65 cr. The IPO consists of 3250000 fresh equity shares (worth Rs. 47.13 cr.), and an Offer for Sale of 450000 equity shares (worth Rs. 6.52 cr.). The issue opens for subscription on January 22, 2025, and will close on January 24, 2025. The minimum number of shares to be applied is for xxx shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 33.02% of the post-IPO paid-up capital of the company. The company is spending Rs. 2.77 cr. for this IPO process, and from the net proceeds of the fresh equity issue, the company will utilize Rs. 25.00 cr. for purchase of equipment and renovation of factory, Rs. 10.00 cr. for working capital, Rs. 3.52 cr.  for inorganic growth, and Rs. 5.84 cr. for general corporate purposes. 

The IPO is solely lead managed by Horizon Management Pvt. Ltd., and Cameo Corporate Services Ltd., is the registrar to the issue. Giriraj Stock Broking Pvt. Ltd., is the Market Maker for the company. 

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 110 - Rs. 202.50 per share in September 2020. It has also issued bonus shares in the ratio of 30 for 1 in August 2024. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 1.55, Rs. 3.55, and Rs. 6.53 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 7.96 cr. will stand enhanced to Rs. 11.21 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 162.49 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 35.72 cr. / Rs. 0.52 cr. (FY22), Rs. 62.89 cr. / Rs. 0.64 cr. (FY23), and Rs. 83.01 cr. / Rs. 5.18 cr. (FY24). For H1of FY25 ended on September 30, 2024, it earned a net profit of Rs. 4.08 cr. on a total income of Rs. 49.57 cr. The sudden boost in bottom lines from FY24 onwards raises eyebrows and concern over its sustainability going forward. From FY23 onwards, financial data is on a consolidated basis.

According to the management, at any given point of time, they have approx. Rs. 15 cr. orders on hand which are to be completed within two months with a billing cycle of about 6 months. The company is focusing on overseas market for its products and is confident of expanding its reach. 

For the last three fiscals, the company has reported an average EPS of Rs. 3.22 and an average RoNW of 31.24%. The issue is priced at a P/BV of 8.82 based on its NAV of Rs. 16.44 as of September 30, 2024, and at a P/BV of 2.70 based on its post-IPO NAV of Rs. 53.72 per share.

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 19.89. Based on FY24 earnings, the P/E stands at 31.32. The issue relatively appears fully priced. 

For the reported periods, the company has posted PAT margins of 1.45% (FY22), 1.02% (FY23), 6.25% (FY24), 8.24% (H1-FY25), and RoCE margins of 23.96%, 18.89%, 62.21%, 36.66%, for the referred periods, respectively.

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. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Naman In-Store, and Parin Enterprises, as their listed peer. They are trading at a P/E of 19.7, and 229.0 (as of January 17 2025). However, they are not truly comparable on an apple-to-apple basis.  

MERCHANT BANKER’S TRACK RECORD:
This is the 10th mandate from Horizon Management in the last two fiscals.  Out of the last 10 listings, 2 opened at discount, 1 at par, and the rest with premiums ranging from 3.05% to 129.17% on the date of listings.