Shri Venkatesh BSE SME IPO review (May apply)

•    SVRL is engaged in soya and cotton seeds oil refining and preservations. 
•    It has posted steady growth in top and bottom lines.
•    Edible oil refining business is the high volume/low margin segment.
•    Cash surplus investors may consider parking funds with a long term perspective.

ABOUT COMPANY:
Shri Venkatesh Refineries Ltd. (SVRL) is primarily engaged in the business of refining and preservation of Edible oils mainly soya bean oil and cottonseed oil. The business process involves the purchase of the raw oil, then refining, packaging and selling of the edible oil. At present, the Company has a refining capacity of almost 36000 tons. Apart from the refining of edible oil, it is also engaged in the business of trading edible oil mainly soya bean oil, cottonseed oil and palm oil.

It is one of the growing companies engaged in the refining of edible oil in the Maharashtra region selling the edible oil under the brand name "Rich Soya". SVRL focuses on creating "Rich Soya" a leading brand name among the different edible oil brands by serving good quality and healthy edible oil at affordable prices.

In 2018 the company set up environment-friendly solar power panels of 650KWH at its factory premises. The electricity generated at these solar plants is used for captive consumption by the company.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 8.78 cr.) and general corporate funds (Rs. 1.47 cr.), SVRL is coming out with a maiden IPO of 2928000 equity shares of Rs. 10 each at a fixed price of Rs. 40 per share to mobilize Rs. 11.71 cr. The issue opens for subscription on September 29, 2021, and will close on October 01, 2021. 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 26.47% of the post issue paid-up capital of the company. SVRL is spending Rs. 1.46 cr. for this IPO process. This indicates that the issue is fully structured with one time subscriptions in hand. 

The issue is solely lead managed by Hem Securities Ltd. and Purva Sharegistry (India) Pvt. Ltd. is the registrar to the issue. Hem Finlease Pvt. Ltd. is the market maker for this issue. 

Having issued initial equity at par, the company raised further equity at Rs. 16 per share in March 2020 and has also issued bonus shares in the ratio of 2 for 1 in March 2019 and 1 for 3 in September 2020. The average cost of acquisition of shares by the promoters is Rs. 3.70, Rs. 4.28, Rs. 4.37 and Rs. 6.57 per share.  

Post issue SVRL's current paid-up equity capital of Rs. 8.13 cr. will stand enhanced to Rs. 11.06 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 44.24 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, SVRL has posted turnover/net profits of Rs. 227.00cr. / Rs. 1.26 cr. (FY19), Rs. 235.52 cr. / Rs. 2.21 cr. (FY20) and Rs. 337.00 cr. / Rs. 3.51 cr. (FY21). Thus the company is in the high volume/low margin segment of the refining business. 

For the last three fiscals, SVRL has reported an average EPS of Rs. 3.70 and an average RoNW of 23.38%. The issue is priced at a P/BV of 2.41 based on its NAV of Rs. 16.59 as of March 31, 2021, and at a P/BV of 1.76 based on its post-IPO NAV of Rs. 22.79.

If we attribute FY21 earnings on fully diluted post issue paid-up equity capital, then the asking price is at a P/E of around 12.62. Thus the issue is fully priced. 

COMPARISON WITH LISTED PEERS:
As per offer documents, SVRL has shown Gokul Agro, BCL Ind., Vijay Solvex and Ajanta Soya as its listed peers. They are currently trading at a P/E of 13.75, 10.75, 10.1 and 5.99 (as of September 24, 2021). However, they are not truly comparable on an apple to apple basis. 

DIVIDEND POLICY:
SVRL has not declared any dividend in the last five years. However, it will adopt a prudent dividend policy post listing based on its financial performance and future prospects. 

MERCHANT BANKER'S TRACK RECORDS:
This is the 13th mandate from Hem Securities in the last three fiscals (including the ongoing one). While the last mandate of Prevest is yet to be listed, out of the last 10 listings, 1 opened at discount, 3 at par and the rest with premiums ranging from 0.4% to 37.2% on the day of listings.