Samor Reality BSE SME IPO review (Avoid)

•    Reality sector is in a dilemma post-pandemic and yet to take off.
•    It has posted inconsistent financial performance.
•    Sudden boost in the top and bottom line in pre-IPO FY21 raises eyebrows.
•    The issue is exorbitantly priced.

ABOUT COMPANY:
Samor Reality Ltd. (SRL) is an integrated construction and real estate development company, focused primarily on the construction and development of residential and commercial projects, in and around Ahmedabad, Gujarat. It believes that it has established a successful track record in the real estate industry in Ahmedabad, Gujarat by developing versatile projects through a focus on innovative architecture, strong project execution and quality construction. SRL markets its projects under the brand name "SAMOR". It also plans to enter into joint ventures for project-specific works. It is doing trading activities too in construction-related materials and its entire FY21 revenue is from trading. 

As of June 30, 2021, it had 8 employees at the construction site and Registered Office including key managerial persons.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for investment into a subsidiary (Rs. 6.00 cr.), general corporate purpose (Rs. 1.66 cr.), SRL is coming out with a maiden IPO of 1300000 equity shares of Rs.10 each at a fixed price of Rs. 62 per share to mobilize Rs. 8.06 cr. The issue opens for subscription on September 30, 2021, and will close on October 05, 2021. 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 30.23% of the post issue paid-up capital of the company. SRL will spend around Rs. 0.40 cr. for this IPO process.

The issue is solely lead managed by Beeline Broking Ltd. and KFin Technologies Pvt. Ltd. is the registrar to the issue. Sunflower Broking Pvt. Ltd. is the market maker for this issue.  

Having issued initial equity at par, the company raised further equity at Rs.72.50 per share in January 2021 and has also issued bonus shares in the ratio of 5 for 1 in the same month. The average cost of acquisition of shares by the promoters is Rs. 10 per share.

Post issue SRL's current paid-up equity capital of Rs. 3.00 cr. will stand enhanced to Rs. 4.30 cr. Based on IPO pricing, the company is looking for a market cap of Rs. 26.66 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last four fiscals, SRL has posted turnover/net profits of Rs. 8.33 cr. / Rs. 0.11 cr. (FY18), Rs. 1.07 cr. / Rs. - (0.09) cr. (FY19), Rs. 0.24 cr./ Rs. 0.001 cr. (FY20) and Rs. 9.64 cr. / Rs. 0.10 cr. (FY21). Boost in the top and bottom lines for FY 21 i.e. pre-IPO year with pandemic scare raises eyebrows. 

For the FY19 and FY20 - two fiscals, SRL reported an average EPS of Rs. - (0.35) and an average RoNW of 7.71%. The issue is priced at a P/BV of 5.99 based on its NAV of Rs. 10.35 as of March 31, 2021, and at a P/BV of 2.39 based on its post-issue NAV of Rs. 25.96. 

If we attribute FY21 earnings to fully diluted post issue paid-up equity capital, then the asking price is at a P/E of around 269.57, making it an exorbitantly priced issue. 

COMPARISON WITH LISTED PEERS:
As per offer documents, SRL has shown Ratnabhumi Developers as its listed peers. It is trading at a P/E of 102.42 (as of September 27, 2021). However, they are truly not comparable on an apple to apple basis. 

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

MERCHANT BANKER'S TRACK RECORDS:
This is the 11th mandate from Beeline in the last four fiscals (including the ongoing one). The last mandate of Quadpro is yet to be listed. Out of the last 9 listings, 2 opened at discount, 1 at par and the rest at the premiums ranging from 1.37% to 10% on the date of listings.