Sheetal Universal NSE SME IPO review (May apply)

•    SUL is engaged in Agri commodity sourcing, processing and marketing. 
•    It marked sudden boost in its top and bottom lines from FY23 onwards.
•    Based on annualized super earnings for FY24, the issue appears fully priced. 
•    Well-informed investors may park funds for the medium term rewards.
 
PREFACE:
This company has nothing to do with Sheetal Diamonds Ltd. and/or Sheetal Cool Products Ltd. It deals in Agri commodities with more focus on exports. However, the exports of Agri products from India has seen moderation from FY23 onwards. Its export revenues were Rs. 107.26 cr. for FY23 out of total revenues. Its future hinges on upgrades in Star Export House ratings.

ABOUT COMPANY:
Sheetal Universal Ltd. (SUL) was incorporated with the object of Sourcing, processing and supply in agriculture commodities like peanut, sesame seeds, spice and grains to cater the manufacturer of peanut butter, biscuits, cakes, chocolate and food products. Within short span, SUL recognized as Category One Star Export House Exporter by Ministry of Commerce and Industry due to its performance in exports later on in May 2023 the company was categorized as Two Star Export House 

Its manufacturing & processing facility situated at plot No. 1 to 7, Survey No. 502, Haripar Khandhera, Taluka- Kalawad, District- Jamnagar, Gujrat. Its manufacturing facility employs an extensive and stringent quality control mechanism at each stage of the process to ensure that finished product conforms to the exact requirement of customers. 

As on the date of this Prospectus, its manufacturing facility is accredited with ISO 22000:2018 certifications for the processing of groundnut, groundnut kernals, sesame seeds and whole & ground spices. The company is also the member of Agricultural & Processed Food Products Export Development Authority and Indian Oil Seeds& Produce Export Promotion Council.

The Company has two subsidiaries Saumesvar International Private Limited and Svar Industries Private Limited. Its subsidiaries are processor, exporter of Agri Commodities like oil seed, grains etc. As of July 31, 2023, it had 19 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 3400000 shares of Rs. 10 each at a fixed price of Rs. 70 per share. It mulls mobilizing Rs. 23.80 cr. The issue opens for subscription on December 04, 2023, and will close on December 06, 2023. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 29.68% of the post-IPO paid-up capital of the company. 

SUL is spending Rs. 2.33 cr. for this IPO process, and from the net proceeds of the IPO funds, it will utilize Rs. 5.84 cr. capital expenditure, Rs. 12.00 cr. for working capital, and Rs. 3.63 cr. for general corporate purposes. After reserving 172000 shares for the market maker, the company has allocated net portion of the IPO as not more than 50% to Retail Investors and not more than 50% for Non-Retail investors. 

The issue is solely lead managed by Beeline Capital Advisors Pvt. Ltd. and Bigshare Services Pvt. Ltd. is the registrar of the issue. Beeline Group's Spread X Securities Pvt. Ltd. is the market maker for the company. 

Having issued initial equity shares at par, the company allotted further equity shares at a fixed price of Rs. 70.00 per share in June 2023. It has also issued bonus shares in the ratio of 4 for 25 in October 2017, 1 for 5 in October 2018, 1 for 6 in October 2019, and 28 for 25 in July 2023. The average cost of acquisition of shares by the promoters is Rs. 3.31, and Rs. 6.78 per share. 

Post-IPO, SUL's current paid-up equity capital of Rs. 8.06 cr. will stand enhanced to Rs. 11.46 cr. Based on the upper cap of IPO price band, the company is looking for a market cap of Rs. 80.19 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, SUL has (on a consolidated basis) posted a total income/net profit of Rs. 38.84 cr. / Rs. 0.25 cr. (FY21), Rs. 39.84 cr. / Rs. 0.28 cr. (FY22), and Rs. 131.66 cr. / Rs. 1.99 cr. (FY23). For 5M of FY24, it earned a net profit of Rs. 1.88 cr. on a total income of Rs. 58.27 cr. 

For the last three fiscals, the company has reported an average EPS of Rs. 1.09 and an average RoNW of 18.42%. The issue is priced at a P/BV of 5.38 based on its NAV of Rs. 13.00 as of August 31, 2023, and at a P/BV of 2.34 based on its post-IPO NAV of Rs. 29.91 per share. 

If we attribute consolidated super FY24 annualized earnings to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 17.81. Thus the IPO appears fully priced. 

For the reported periods, the company has posted PAT margins of 0.68% (FY21), 0.73% (FY22), 1.54% (FY23), 3.31% (5M-FY24), and RoCE margins of 7.28%, 6.99%, 21.59%, 13.50% respectively for the referred periods. 

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 no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
This is the 24th mandate from Beeline Capital in the last two fiscal (including the ongoing one). Out of the last 10 listings, all were listed at premiums ranging from 2.67% to 85.71% on the day of listing.