Shashwat Furnishing BSE SME IPO review (Avoid)

•    SFSL is coming out with this IPO with just 11 months of working.
•    The financial data is lacking support for the asking price. 
•    The offer documents have some mismatches on their NAV data.
•    Small equity post IPO indicates longer gestation for migration to the mainboard.
•    Avoid this exorbitantly priced IPO. 

ABOUT COMPANY:
Shashwat Furnishing Solutions Ltd. (SFSL) is engaged in processing semi-finished furniture products into finished products and manufacturing through job work of furniture and handicraft items. The company specialize in developing a qualitative range of Industrial Furniture and Restaurant and Cafe Furniture, Garden and Outdoor Furniture Vintage Furniture, Mirror Frames, Wall clocks and various other decoration & handicrafts objects. 

It was incorporated as a private limited company under the Companies Act, 2013 with the name Shashwat Furnishing Solutions Private Limited", subsequently, it acquired the entire business with the assets and liabilities of M/s Handicrafts Village, a sole proprietorship concern of Promoter and then Company was converted into Public Limited Company and consequently the name of the company was changed from "Shashwat Furnishing Solutions Private Limited" to "Shashwat Furnishing Solutions Limited".

It sources products from reliable manufacturers in the market. After the purchase of the order in semi-finished condition SFSL process the same by finishing, assembling and repairing turning them into finished products. 

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 1.60 cr.) and general corporate purposes (Rs. 0.51 cr.), SFSL is coming out with a maiden IPO of 558000 equity shares of Rs. 10 each at a fixed price of Rs. 45 per share to mobilize Rs. 2.51 cr. The issue opens for subscription on April 20, 2022, and will close on April 25, 2022. Minimum application is to be made for 3000 shares and in multiples thereon, thereafter. Post allotment shares will be listed on BSE SME. The issue constitutes 26.72% of the post-IPO paid-up capital of the company. SFSL is spending 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 acting as a market maker for this company.

Having issued initial equity at par, the company issued further equity shares at a price of Rs. 100 per share between June 2021 and July 2021. It has also issued bonus shares in the ratio of 15 for 2 in July 2021. The average cost of acquisition of shares by the promoters is Rs. 11.17 per share. 

Post-IPO, SFSL's current paid-up equity capital of Rs. 1.53 cr. will stand enhanced to Rs. 2.09 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 9.40 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, SFSL has reported working for the last 11 months (i.e. 11M FY22) only as it did no business for FY21. For the reported period of FY22, it has earned a net profit of Rs. 0.16 cr. on a turnover of Rs. 1.23 cr. The issue is priced at a P/BV of xx based on its NAV of Rs. 11.61 as of February 28, 2022, and at a P/BV of xx based on its post-IPO NAV of Rs. 11.74 (??). 

There appears to be some mismatch in post-IPO NAV calculations (refer to page 68 of the offer document). 

For the last 11 months working, the company has reported an EPS of Rs. 1.09 and based on this the asking price is at a P/E of 41.28. If we annualize these earnings and attribute them to fully diluted post IPO equity, then the asking price is at a P/E of 53.6. Thus the issue is exorbitantly priced. 

DIVIDEND POLICY:
The company has not declared any dividend since incorporation. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per offer documents, SFSL has no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
This is the 14th mandate from Beeline Broking in the last five fiscals (including the ongoing one). Out of the last 10 listings, 3 opened at discount, 2 at par and the remaining with premiums ranging from 1.37% to 9% on the day of listings.