Siddhika Coatings NSE SME Emerge IPO review (May apply)

•    SCL is a strategic channel partner in India for SKK group - Singapore.
•    Though inconsistency, it posted good financials and has strong NAV.
•    Based on FY20 earnings, the issue is priced at a P/E of around 6.
•    It suffered a severe setback in the pandemic year and may take some more time to be back on track.
•    Cash surplus investors may consider long term investment.

ABOUT COMPANY:
Siddhika Coatings Ltd. (SCL) is a strategic channel partner in India for SK Kaken Ltd. ('SKK') and an authorized importer of its products through SKK Singapore Pte. Ltd. SKK is a renowned coatings and pigments manufacturer based in Japan. Having been associated with SKK for over 15 years, it has gained the reputation of being one of the well-known suppliers of their products in India.

SCL provides application services which include preparing and coating interior as well as exterior surfaces of civil structures using organic and inorganic architectural textured pigments and technical-grade functional coatings. In addition, to apply and supply to the majority of its clients, the company also provides technical support service along with the supply of products wherein its experienced team provides technical know-how, guidance and equipment for paint/coatings application. Currently, SCL is placed as one of the older marketers for SKK products and its specialist paint and application service providers in India.

The company follows the 'team-based' model of its business and annually manages approx. 250000 sq. mtrs. Of application contracts. It focuses on providing bespoke services for both, existing clients with repeat contracts as well as new clients to suit their requirements.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 3.31 cr.), general corpus funds (Rs. 0.99 cr.), the company is coming out with a maiden IPO of 824000 equity shares of Rs. 10 each with a price band of Rs. 57 per share to mobilize Rs. 4.70 cr. The issue opens for subscription on March 24, 2021, and will close on March 26, 2021. Minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on the NSE SME Emerge platform.

 It constitutes 26.67% of the post issue paid-up equity capital of the company.  

The issue is solely lead managed by Unistone Capital Pvt. Ltd., and Skyline Financial Services Pvt. Ltd. Is the registrar to the issue. Rikhav Securities Ltd. is the market maker for this issue. SCL will be spending Rs. 0.40 cr., for this IPO process.

Having issued initial equity at par, the company has raised further equity in the price range of Rs. 30 to Rs. 209 between February 2011 and March 2016. It also bought back few shares at Rs. 144 per share in March 2015. The company has also issued bonus shares in the ratio of 9 for 1 in October 2019. The average cost of acquisition of shares by the promoters is Rs. 1.00 per share.

Post the issue, SCL's current paid-up equity capital of Rs. 2.27 cr., will stand enhanced to Rs. 3.09 cr. At the upper price band of the issue, the company is looking for a market cap of Rs. 17.61 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, SCL has (on a consolidated basis) posted turnover/net profit of Rs. 22.15 cr. / Rs. 2.56 cr. (FY18), Rs. 32.24 cr./ Rs. 3.51 cr. (FY19) and Rs. 30.42 cr. / Rs. 2.96 cr. (FY20). For the first half of the current FY21 ended on September 30, 2020, it has earned a net profit of  Rs. 0.20 cr., on a turnover of Rs. 6.15 cr. Having shown inconsistency for the previous three fiscals, it also posted a heavy setback for the first half of FY21 ended on September 30, 2020, due to a pandemic scare.

For the last three fiscals, SCL has posted an average EPS of Rs. 13.58 and an average RoNW of 20.47%. The issue is priced at a P/BV of 0.75 based on its NAV of Rs. 75.86 as of September 30, 2020, and at a P/BV of 0.82 based on its post-issue NAV of Rs. 69.53.

If we annualize the latest earnings (posting setback due to pandemic) and attribute it to a fully diluted equity post issue, then the asking price is at a P/E of around 44.19, but on the basis of FY20 earnings, the asking price is at around 5.95 P/E.

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

DIVIDEND POLICY:
For the last three fiscals, the company has paid a dividend of 125% (FY18), 150% (FY19) and 20% (FY20). It will continue to follow a prudent dividend policy based on its performance and future prospects going forward.

MERCHANT BANKER'S TRACK RECORDS:
This is the 4th mandate from its stable in the last three fiscals (including the ongoing one). Out of the last 3 listings, all opened with premiums ranging from 0.37% to 13.83% on the day of listings.