Silky Overseas NSE SME IPO review (May apply)

•    The company is engaged in manufacturing and marketing bedding products including blankets and related materials
•    The company marked growth in its top and bottom lines for the reported periods.
•    The sudden boost in bottom lines from FY24 onwards raise eyebrows and concern over its sustainability going forward.
•    Considering small paid-up equity capital post-IPO, it will have longer gestation period for migration.
•    Only well-informed/cash surplus investors may park moderate funds for long term.

ABOUT COMPANY:
Silky Overseas Ltd. (SOL) is manufacturers and suppliers of bedding products, including blankets, bed sheets, comforters, and related items. Our manufacturing process is integrated and includes knitting, dyeing, processing, printing, and packaging, all conducted within a single facility. This approach allows for the efficient production of large quantities while ensuring that products maintain a consistent standard of comfort and durability. Its product range includes blankets, baby blankets, comforters, bedsheets, and curtains, all designed by a team of professionals and produced using appropriate machinery and techniques. The company holds ISO 9001:2015 certification, demonstrating adherence to quality standards as recognized by the United Registrar of Systems certification body.

SOL manufactures products based on the order specifications received from customers to meet their requirements. The Company is enhancing its product range as well as its client base so the dependency on a few customers for sale can be avoided. It has distributors in other states such as West Bengal, Assam, Punjab, New Delhi, Bihar etc. E-commerce and direct-to-consumer (D2C) present significant opportunities for the company, given the growing potential of the sector. E-commerce in India is currently at a key stage of development and has been experiencing consistent year-on-year growth since its inception. The company sold 40,000 blankets on Flipkart alone. Since then, it has added other portals such as Ajio, Amazon, Walmart, etc., and own website www.silkyoverseas.com. 

Along with manufacturing it also deals in trading of products by procuring from the local market and directly selling without any modification. Its products are sold under “Rian Décor” brand. As of May 31, 2025, it had 135 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 1905600 equity shares of Rs. 10 each to mobilize Rs. 30.68 cr. at the upper cap. It has announced a price band of Rs. 153 – Rs. 161 per share. The issue opens for subscription on June 30, 2025, and will close on July 02, 2025. The minimum number of shares to be applied is for 800 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 29.93% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 3.00 cr. for repayment of certain borrowings, Rs. 4.30 cr. for capex on setting up of storage facility, Rs. 12.00 cr. for working capital, and the rest for general corporate purposes. 

The IPO is solely lead managed by Gretex Corporate Services Ltd., and Skyline Financial Services Pvt. Ltd., is the registrar to the issue. GRETEX Group’s Gretex Share Broking Pvt. Ltd. is a market maker. Gretex Share Broking Ltd. is a syndicate member. The issue is underwritten to the tune of 50% each by Gretex Corporate Services and Gretex Share Broking.

The company has issued initial equity shares at par value, and issued further equity capital at a fixed price of Rs. 82.30 in December 2023. The average cost of acquisition of shares by the promoters is Rs. 8.33, and Rs. 10.00 per share. per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 4.46 cr. will stand enhanced to Rs. 6.37 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 102.52 cr. Small paid-up equity capital post IPO indicates longer gestation period for migration to mainboard.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit/ - (loss) of Rs. 50.17 cr. / Rs. – (0.42) cr. (FY22), Rs. 68.35 / Rs. 0.98 cr. (FY23), Rs. 70.26 cr. / Rs. 5.53 cr. (FY24). For 10M of FY25 ended on January 31, 2025, it earned a net profit of Rs. 9.17 cr. on a total income of Rs. 105.35 cr. The sudden boost in its bottom lines from FY24 onward raise eyebrows and concern over its sustainability. According to the management, with cost-effective production and reduced finance cost, it will be able to maintain the margin trends in coming years. Its plans for captive power generation.

For the last three fiscals, the company has reported an average EPS of Rs. 7.54 and an average RoNW of 23.45%. The issue is priced at a P/BV of 4.28 based on its NAV of Rs. 37.60 as of March 31, 2024, but its post-IPO NAV data is missing from offer documents. Surprisingly, the company has failed to give its NAV data as of January 31, 2025 period.

If we attribute FY25 super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 8.39. Based on FY24 earnings, the P/E stands at 18.53. The issue relatively appears fully priced.

For the reported periods, the company has posted PAT margins of – (0.83) % (FY22), 1.44% (FY23), 7.94% (FY24), 8.73%, (10M-FY25), and RoCE margins of 10.09%, 30.95%, 39.54%, 45.12%, respectively for the referred periods. 

DIVIDEND POLICY:
The company has not paid 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.

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Welspun Living, Trident Ltd., as their listed peers. They are trading at a P/E of 21.8, and 43.5 (as of June 26, 2025). However, they are not truly comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORD:
This is the 18th mandate from Gretex Corporate in the last three fiscals including the ongoing one.  From the last 11 listings, 2 listed at discount and the rest with a premium ranging from 0.40% to 187.36%, on the listing date.