Royal Sense BSE SME IPO review (Avoid)

•    RSL is in the business of supplying healthcare related equipments and other products.
•    It emerged as a public limited entity in April 2023, and before that it was divided in to three proprietorship concerns. 
•    It has posted average financial performance which is not in line with the asking price. 
•    Based on FY24 annualized earnings, the issue is aggressively priced. 
•    There is no harm in skipping this "High Risk/Low Return" IPO. 

PREFACE:
While SEBI is on streamlining the procedures and other matters for SME platform, we are still witnessing delaying tactics in observing compliances. This IPO prospectus is dated March 05, 2024, but till March 11, 2024 noon, this was not uploaded on the designated exchange website. Even on related party's website, it was not available till last week end. This is ridiculous and non-investor friendly move. Is it a deliberation or something else? 

ABOUT COMPANY:
Royal Sense Ltd. (RSL) is suppliers of high quality goods that meet international standards required for hospitals, laboratories, institutions and clinics to provide health services. The company trades and offers a wide range of surgical accessories, tools, equipment and other things. The supplied assortment can be modified according to the requirements of the clients and is offered in a wide range of parameters.

It works relentlessly with the right strategy, forward thinking and progressive ethos to position itself as the one-stop solution for customers looking to meet their complete needs for medical equipment, surgical instruments, surgical consumables, laboratory equipment, laboratory reagents, medical consumables, diagnostic equipment, sanitary napkins, pharmaceuticals, medicine and cosmetics. 

The company was incorporated in April 06, 2023. Prior to the incorporation of the Company, its promoter was running the business in sole proprietorships under the name "M/s Royal Traders, PHT and Anaya". Later, on April 28, 2023, the ongoing business of the aforesaid company was acquired by Royal Sense Limited along with the assets and liabilities of the company.

It has extended supply chain to government e-procurement systems, i.e. tender systems, GEM Portal etc. As of June 30, 2023, it had 8 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 1450000 equity shares of Rs. 10 each at a fixed price of Rs. 68 per share to mobilize Rs. 9.86 cr. The issue opens for subscription on March 12, 2024, and will close on March 14, 2024. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 29.59% of the post-IPO paid-up capital of the company. The company is spending Rs. 1.46 cr. for this IPO process, and from the net proceeds, it will utilize Rs. 6.00 cr. for working capital, and Rs. 2.40 cr. for general corporate purposes.

The issue is solely lead managed by Expert Global Consultants Pvt. Ltd., and Bigshare Services Pvt. Ltd. is the registrar of the issue. Rikhav Securities Ltd. is the market maker for the company. 

The company has issued/converted entire equity capital at par so far. The average cost of acquisition of the shares by the promoters is Rs. 10.00 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 3.45 cr. will stand enhanced to Rs. 4.90 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 33.32 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, as a consolidated performance of the three proprietorship concerns i.e. Royal Traders, PHT and Anaya, it posted a total income/net profit of Rs. 7.13 cr. / Rs. 0.21 cr. (FY21), Rs. 6.75 cr. / Rs. 0.22 cr. (FY22), and Rs. 12.27 cr. / Rs. 1.32 cr. (FY23). As a public limited entity, for the H1 of FY24 ended on September 30, 2023, it earned a net profit of Rs. 0.70 cr. on a turnover of Rs. 8.04 cr. 

As a public limited entity, it has reported an EPS o f2.04 (not annualized) for the current fiscal, and its RoNW data is missing for this period in the offer document. The issue is priced at a P/BV of 5.65 based on its NAV of Rs. 12.04 as of September 30, 2023, and at a P/BV of 2.78 based on its post-IPO NAV of Rs. 24.45.

If we attribute annualized FY24 earnings to its post-IPO fully diluted paid-p capital, then the asking price is at a P/E of 23.69. Thus the issue appears aggressively priced. 

For the reported period as a public limited entity, the company has posted PAT margin of 0.09% (H1-FY24). 

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 shown Hemant Surgical, and Centenial Surgical as their listed peers. They are trading at a P/E of 18.1, and 37.1 (as of March 11, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 6th mandate from Expert Global in the last three fiscals, out of the last 5 listings, 1 opened at discount, 1 at par and the rest with premiums ranging from 10.47% to 42.72% of the day of listing.