Shree Marutinandan BSE SME IPO review (May apply)

•    The company is in the business of trading and distribution of pipes, tubes, and solar structural pipes.
•    It marked static top line with fluctuating bottom lines for the last two fiscals.
•    It marked boosted top and bottom line for H1-FY24 that raise eyebrows and concern over its sustainability. 
•    Based on FY24 annualized earnings, the issue appears fully priced. 
•    A tiny post-IPO equity base indicates longer gestation period for migration.
•    Well-informed investors may park funds for the long term rewards.

ABOUT COMPANY:
Shree Marutinandan Tubes Ltd. (SMTL) is engaged in the business of trading of Galvanized Pipe, Electric Resistance Welding Mild Steel ("ERW MS") Pipes (round pipes, square and rectangular hollow sections) in various specifications, sizes ranging from 15NB to 1000 NB and also in trading of Black Pipes and Solar Structural Pipes. Its products have wide application in varied industries like Agriculture, Oil, Public Health, Housing, Irrigation, Engineering, Infrastructural, Industrial etc.

It has independent sales and distribution networks for products. A substantial majority of steel pipes are sold to wholesalers & Distributors in the domestic markets. It procures Steel Pipes from the best manufacturers in steel pipes at domestic level. The company has a procurement policy and generally purchase in large volumes in order to stock and facilitate on time delivery of products to end customers. 

The Company is a well-established and has made a significant mark in the trading of steel tubes and pipes. However, from FY 2023, it has taken a strategic step of forward integration to expand its business horizons and diversify offerings. It accords contract manufacturing of agricultural equipment to its group company Shree Kamdhenu Machinery Private Limited. This move enables it to provide a broader range of products to clients, catering to the growing demand for agricultural machinery and equipment in the market.

The product portfolio of the company now includes an array of agricultural equipment such as potato digger machines, grader machines, hopper machines, groundnut de-stoner machines, pipe winder machines, and rotovators. As of December 25, 2023, it had 14 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 1000000 equity shares of Rs. 10 each at a fixed price of Rs. 143.00 per share to mobilize Rs. 14.30 cr. The issue opens for subscription on January 12, 2024, and will close on January 16, 2024. The minimum application to be made is for 1000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 28.90% of the post-IPO paid-up equity capital of the company. SMTL is spending Rs. 0.70 cr. for this IPO and from the net proceeds, it will utilize Rs. 10.60 cr. for working capital, and Rs. 3.00 cr. for general corporate purposes. 

The issue is solely lead managed by Swastika Investmart Ltd. and Bigshare Services Pvt. Ltd. is the registrar of the issue. Swastika Investmart Ltd. is also the market maker for the company. 

The company has issued entire equity capital at par value so far and has also issued bonus shares in the ratio of 11 for 1 in June 2023. The average cost of acquisition of shares by the promoters is Rs. 0.44, and Rs. 0.83 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 2.46 cr. will stand enhanced to Rs. 3.46 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 49.48 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company posted a total revenue/net profit of Rs. 35.97 cr. / Rs. 0.13 cr. (FY21), Rs. 47.19 cr. / Rs. 0.06 cr. (FY22), Rs. 47.23 cr. / Rs. 2.02 cr. (FAY23). For H1 of FY24 ended on September 30, 2023, it earned net profit of Rs. 1.42 cr. on a total revenue of Rs. 42.85 cr. It appears that the company has window dressed its last 18 months' performance to match the asking price. 

For the last three fiscals, the company has reported an average EPS of Rs. 51.27 (on pre-bonus basis), and an average RoNW of 44.41%. The issue is priced at a P/BV of 8.58 based on its NAV of Rs. 16.66 as of September 30, 2023, and at a P/BV of 2.91 based on post-IPO NAV of Rs. 49.07 per share. 

If we attribute annualized super earnings of FY24 to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 17.42, and based on FY23 earnings, the P/E stands at 24.53. Thus the issue appears fully priced.

For the reported periods, the company has posted PAT margins of 0.37% (FY21), 0.13% (FY22), 4.27% (FY23), and 3.31% (H1-FY24).  

DIVIDEND POLICY:
The company has not declared any dividends for any reported financial years. 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 Swastik Pipes, Hi Tech Pipes, and APL Apollo Tubes as their listed peers. They are trading at a P/E of 25.79, 51.09, and 72.61 (as of January 09, 2024). However, they are not comparable on an apple-to-apple basis. In fact, the peer list includes Swastik Tubes, but while checking no company was found of this name on any exchange. 

MERCHANT BANKER'S TRACK RECORD:
This is the 9th mandate from Swastika Investmart in the last three fiscals. Out of the last 8 listings, 2 opened at discount, 1 at par and the rest with premiums ranging from 4.17% to 36.25% on the date of listing.