Sat Kartar NSE SME IPO review (Apply)

•    The company is engaged in Ayurvedic Healthcare Products marketing.
•    It does online marketing of its products under D2C model.
•    The company marked steady growth in its top and bottom lines for the reported periods.
•    Based on its recent financial performance, the issue appears fully priced. 
•    Investors may park funds for medium to long term.

ABOUT COMPANY:
Sat Kartar Shopping Ltd. (SKSL) is an Ayurveda healthcare company committed to providing natural wellness solutions relating to specific therapeutic areas and general lifestyle products, committed to promote a healthier lifestyle. It integrates traditional Ayurvedic knowledge with modern research to empower individuals to adopt healthier lifestyles. With a strong market presence and a diverse product portfolio, the company focuses on innovation and responsive product development. Initially, the company offered both Ayurveda and spiritual product lines. However, it has strategically refined focus to specialize exclusively in Ayurveda, establishing itself as a dedicated player in this sector and emphasizing quality and effectiveness in holistic wellness offerings.

There is a growing interest among consumers in natural and organic products, driven by a desire for effective alternatives to conventional medicine. Although the market remains diverse, with varying levels of product quality and standardization, SKSL sees a significant opportunity to strengthen its position in the Ayurveda healthcare sector by addressing the increasing demand for high-quality natural wellness products. In order to meet this demand, and with a mission to encourage and support a healthier lifestyle for customers, it caters directly to individual consumers, providing them with holistic, natural remedies and lifestyle products rooted in traditional Ayurveda practices. The Company operates in D2C (Direct-to-Consumer) segment, selling Ayurveda products directly to consumer through own D2C website and third-party e-commerce websites, TV marketing and Google and Meta Applications.

The company operates under a strategic contract manufacturing model, which allows it to concentrate on high-value activities like product innovation, branding, marketing, and distribution. By partnering with trusted third-party manufacturers, it leverages their expertise and resources while maintaining control over formulations and ensuring quality through comprehensive agreements. This approach allows it to connect directly with customers and enhance their experience through streamlined delivery and effective feedback integration.

SKSL’s product development is guided by a deep understanding of market demand, traditional Ayurveda principles, and modern wellness insights. This commitment enables it to create a product range that is both authentic and innovative, addressing the evolving needs of customers. Its primary focus is on directly serving end consumers rather than engaging any intermediaries/ middlemen or other businesses.

The Ayurvedic solutions it present through products are derived from the Charak Samhita, an old Ayurvedic treatise recognized for delivering comprehensive insights and cures for numerous health and lifestyle difficulties, as well as wisdom that echoes in the Indian government's recent initiatives like the National Ayush Mission (NAM), which promotes research and education in Ayurveda. Furthermore, the Rashtriya Ayurveda Vidhyapeeth preserves and transmits this ancient knowledge to future generations. These efforts, when aligned with the timeless principles of Charak Samhita, pave the way for a future where Ayurveda plays an even greater role in promoting health and harmony in India and abroad. As of November 30, 2024, it had overall 1122 employees on its payroll for various departments.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 4172800 equity shares of Rs. 10 each to mobilize Rs. 33.80 cr. at the upper cap. It has announced a price band of Rs. 77 – Rs. 81 per share. The issue opens for subscription on January 10, 2025, and will close on January 14, 2025. The minimum number of shares to be applied is for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.50% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, the company will utilize Rs. 5.00 cr. for unidentified acquisition, Rs. 11.00 cr. marketing and advertising, Rs. 8.00 cr. for capex, Rs. 5.00 cr. for investment in technology, and the rest for general corporate purposes. 

The IPO is solely lead managed by Narnolia Financial Services Ltd., and Skyline Financial Services Pvt. Ltd., is the registrar to the issue. Prabhat Financial Services 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. 77 – Rs. 215 per share between March 2014, and May 2024. It has also issued bonus shares in the ratio of 6for 1 in March 2022, 3 for 1 in February 2024, and 3 for 1 in June 2024. The average cost of acquisition of shares by the promoters is Rs. 0.25, Rs. 0.63, Rs. 2.27, and Rs. 53.75 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 11.57 cr. will stand enhanced to Rs. 15.74 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 127.53 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total revenue/net profit of Rs. 52.31 cr. / Rs. 1.39 cr. (FY22), Rs. 82.98 cr. / Rs. 2.51 cr. (FY23), and Rs. 128.11 cr. / Rs. 6.31 cr. (FY24). For 8.5M of FY25 ended on December 15, 2024, it earned a net profit of Rs. 5.90 cr. on a total income of Rs. 109.55 cr. (The offer document contains financial data in Rs. Thousands).

For the last three fiscals, the company has reported an average EPS of Rs. 12.78 and an average RoNW of 89.00%. The issue is priced at a P/BV of 5.43 based on its NAV of Rs. 14.93 as of December 15, 2024, and at a P/BV of 2.50 based on its post-IPO NAV of Rs. 32.44 per share (at the upper cap).

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 15.31. Based on FY24 earnings, the P/E stands at 20.20. The issue relatively appears fully priced. 

For the reported periods, the company has posted PAT margins of 2.67% (FY22), 3.02% (FY23), 4.93% (FY24), 5.40% (8.5M-FY25), and RoCE margins of 27.57%, 68.84%, 91.55%, 47.52%, respectively for the referred periods.

DIVIDEND POLICY:
The company has paid a dividend of 7.00% for FY24. It has adopted a dividend policy in June 2024, based on its financial performance and future prospects. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Jeena Sikho, and Kerala Ayurveda, as their listed peer. They are trading at a P/E of 66.6 and 151.0 (as of January 06, 2025). However, they are not truly comparable on an apple-to-apple basis.  

MERCHANT BANKER’S TRACK RECORD:
This is the 16th mandate from Narnolia in the last two fiscals.  From the last 10 listings, 3 listed at discount, and the rest listed with a premiums ranging from 2.60% to 110.36% on the listing date.