ShreeOswal Seeds NSE SME IPO review (Apply)

ShreeOswal Seeds & Chemicals Ltd. (SSCL) is engaged in the business of production, processing and sale of different kind of agricultural seeds, maize and soyabean. Having started business as partnership firm got converted into public limited company in the year 2017. SSCL processes various kinds of seeds at its processing unit which is located at Neemuch, Madhya Pradesh. At present, Company processes 5 varieties of wheat seed, 5 varieties of soya bean seed, 3 varieties of Mustard seed, 1 variety of black grams, 1 variety of corn seeds and 1 Variety of isabgol/psyllium. Majority of its revenue is from the sale of wheat and soyabean seeds. SSCL markets its products under the brand name 'Oswal'. SSCL's has covered state of Bihar, Jharkhand, Maharashtra, Madhya Pradesh, Rajasthan and Uttar Pradesh for marketing of its products with a dealer network of over 6000

To part finance purchase of new plant and machinery, working capital and general corpus fund needs, SSCL is coming out with a maiden IPO of 4576000 equity shares of Rs. 10 each via book building route with a price band of Rs. 25 – Rs. 26 to mobilize Rs. 11.44 cr. to Rs. 11.90 crore (on the basis of lower and upper price bands). Issue opens for subscription on 07.06.18 and will close on 12.06.18. Minimum application is to be made for 4000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. Issue constitutes 30.02% of the post issue paid up capital of the company. Issue is solely lead managed by Pantomath Capital Advisors Pvt. Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Having issued initial equity at par, it raised further equity at a fix price of Rs. 10.25 per share in February 2018. Average cost of acquisition of shares by the promoters is Rs. 10.11 per share. Post issue, its current paid up equity capital of Rs. 10.67 crore will stand enhanced to Rs. 15.25 crore.

From FY 2012-13 to FY 2017-18, as per Restated Financial Statements, SSCL's total revenue has shown growth from Rs. 22.54 cr. to Rs. 48.61 cr. representing a CAGR of 13.66%, EBITDA has shown growth from Rs. 0.67 cr. to Rs. 4.52 cr., representing a CAGR of 37.40 % and profit after tax has shown growth from Rs. 0.13 cr. to a profit of Rs. 1.02 cr. representing a CAGR of 55.94%. Since it has merged its operations of seeds and psyllium, on a consolidated basis for FY18 it has earned net profit of Rs. 2.29 cr. on a turnover of Rs. 78.19 cr. For last three fiscals on standalone basis it posted an average EPS of Rs. 1.97 and an average RoNW of 14.66%. Based on consolidated working (which reflects only four month's working of psyllium unit) if we attribute it on fully diluted equity post issue, then asking price is at a PE of around 17 against industry composite of 30. Issue is priced at a P/BV of 2.41 based on its consolidated NAV of Rs. 10.78 as on 31.03.18. As per offer documents, it has shown Kaveri Seeds, Mangalam Seeds and Monsanto India as its listed peers that are currently trading at a PE of around 17, 31 and 30 respectively. Even if we consider latest entrants like Bombay Super and Indo US, they are trading at a PE of around 510 and 44 (as on 31.05.18). Thus issue appears reasonably priced.

On merchant banker's front, this is 71st mandate from its stable in last four fiscals. Out of last 10 listings, 1 opened at par and 9 with a premium ranging from 1.59% to 20% on the day of listing.