Silver Pearl BSE SME IPO review (Avoid)

•    This hospitality company has posted minuscule financial data.
•    Based on super earnings for FY22, the asking price is exorbitant.
•    Post IPO low promoter equity and servicing of multifold post IPO equity are major concerns.
•    LM has a poor track record.
•    Investors may skip this pricy bet. 

ABOUT COMPANY:
Silver Pearl Hospitality & Luxury Spaces Ltd. (SPHLSL) is a hospitality company that operates in the mid-priced hotel sector, consisting of the upper-midscale, midscale and economy hotel segments. Its current properties are located in Rakchham, Kinnaur, Himachal Pradesh. Rakchham village is located in Sangla Tehsil of Kinnaur district in Himachal Pradesh, India. Rakchham village is around 10 km from Chitkul and around 12 km from Sangla and is located between the two. 

SPHLSL's first hotel property started operations in FY 19-20. It also operates a café at Rakchham. All hotels, cafes and restaurants are operated under the brand name "Osiya". The company provides authentic hospitality and gives its guests a localized and memorable experience. It seeks to cater to the family as well as adventure-loving guests and deliver differentiated yet superior service offerings, with a value-for-money proposition. Currently, it is operating with 36 rooms in 4 properties.

The Company has entered into an MoU dated January 1, 2022, for Online Marketing and Branding of Tashi Dolma Home stay situated at Bhabha Nagar, Tehsil Nichar, District Kinnaur, Himachal Pradesh on a commission basis. The guest house will be known as "Osiya Tashi Dolma Home Stay". It has also entered into an MoU dated December 1, 2021, for Online Marketing and Branding of Baba Inn Guest Home situated at Bari, District Kinnaur, Himachal Pradesh on a commission basis. The guest house will be known as "Osiya Baba Inn Guest Home". As of the date of filing this offer document, it had 30 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for funding of Hotel Property in Goa (Rs. 6.50 cr.) and general corporate purposes (Rs. 1.80 cr.), SPHLSL is coming out with a maiden IPO of 5000000 equity shares of Rs. 10 each at a fixed price of Rs. 18 per share to mobilize Rs. 9.00 cr. The issue opens for subscription on June 06, 2022, and will close on June 09, 2022. Minimum application is to be made for 8000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 63.67% of the post issue paid-up capital of the company. SPHLSL is spending Rs. 0.70 cr. for this IPO process. 

The issue is solely lead managed by Inventure Merchant Banker Services Pvt. Ltd. and Purva Sharegistry (India) Pvt. Ltd. is the registrar to the issue. SVCM Securities Pvt. Ltd. is the market maker for the company. 

Having issued initial equity at par, the company issued further equity in the price range of Rs. 18 to Rs. 50 per share between March 2011 to February 2022. It has also issued bonus shares in the ratio of 1 for 1 in December 2013 and 15 for 10 in November 2021. The average cost of acquisition of shares by the promoters is Rs. 17.93 and Rs. 18.00 per share. 

Post-IPO, SPHLSL's current paid-up equity capital of Rs. 2.85 cr. will stand enhanced to Rs. 7.85 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 14.14 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, for the last three fiscals, SPHLSL has posted turnover/net profits of Rs. 0.29 cr./ Rs. 0.001 cr. (FY20), Rs. 0.18 cr. / Rs. 0.03 cr. (FY21) and Rs. 0.46 cr. / Rs. 0.12 cr. (FY22). While its financial data is listless, its surge in the top and bottom line in the pre-IPO year raises eyebrows and sustainability concerns. 

For the last three fiscals, SPHLSL has posted an average EPS of Rs. 0.64 and an average RoNW of 2.59%. The issue is priced at a P/BV of 1.18 based on its NAV of Rs. 15.31 as of March 31, 2022, and at a P/BV of 1.06 based on its post-IPO NAV of Rs. 17.02 per share. 

If we attribute FY22 earnings on post IPO fully diluted equity capital, then the asking price is at a P/E of 120 making this offer exorbitantly priced with listless financial data. 

DIVIDEND POLICY:
SPHLSL has not declared any dividend since incorporation. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, SPHLSL has shown The Byke Hospitality, Kamat Hotels and Aruna Hotels as its listed peers. They are currently trading at a P/E of 00, 00 and 00 (as of May 30, 2022). Due to negative earnings, all these peers are trading at negative P/E. However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORDS:
This is the 6th mandate from Inventure Merchant Banker in the last four fiscals (including the ongoing one). Out of the last 5 listings. 2 opened at discount and the rest with premiums ranging from 0.05% to 57.14% on the day of listings. Omnipotent Ind. is perhaps the exceptional case so far. It has a poor track record.