Spinaroo Commercial BSE SME IPO review (Avoid)

•    The company is engaged in the manufacturing and marketing of aluminium foil products, paper cups, paper plates and related matters. 
•    It marked inconsistency in its reported financial performances.
•    Based on recent financial data, the issue appears aggressively priced.
•    It is operating in a highly competitive and fragmented segment.
•    Small post-IPO equity indicates longer gestation period for migration.
•    This “High Risk/Low Return” pricey bet may be skipped.

ABOUT COMPANY:
Spinaroo Commercial Ltd. (SCL) is engaged in manufacturing of Aluminium Foil Container, Aluminium Home Foil, Paper Cups, Paper Plates, Paper Bowls, Semi Processed Material for Paper Cups viz. paper coating, printing, blanking etc. It also deals in wide range of Paper Cup related Machinery like High-Speed Paper Cup Making Machine, Flexo Printing Machine, Automatic Roll Die Cutting Machine etc. with full end to end support.

It offers a wide range of products made from superior-quality raw materials sourced from highly reliable vendors. Under the guidance of experienced professionals, these products are manufactured to ensure exceptional performance and premium quality. In addition to delivering quality products, the company provides these products at competitive prices and ensure timely delivery, tailored to meet clients' precise specifications. Its paper cup making machines are procured from reputable and trusted vendors within the industry, who ensure the highest quality standards. These certified vendors utilize state-of-the-art machines and tools to manufacture products that meet specific client requirements. They are well-versed in understanding and fulfilling the unique demands of customers.

It has established two manufacturing facilities, both located within the Jalan Industrial Complex. The first facility is situated at Gate-1, Right Lane-6, P.O. Jangalpur, Begri Gram Panchayat, Kolkata, Howrah – 711411, and also serves as registered office. The second facility is located at Gate-1, Right Lane-3, within the same industrial complex. Having both manufacturing units in close proximity within the same complex is highly advantageous, providing with significant cost efficiencies both logistically and commercially. This setup allows for streamlined operations and effective resource management.

SCL’s manufacturing facilities are equipped with the necessary tools, machineries, other equipment’s and amenities, to support a seamless manufacturing process, hassle-free production, Quality testing, storage and packaging. All machineries are periodically upgraded and lubricated with experienced personnel so as to retain production rate. As of October 31, 2024, it had 35 employees on its payroll. It also hires contract workers as and when required.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 1994000 equity shares at a fixed price of Rs. 51 per share to mobilize Rs. 10.17 cr. The issue opens for subscription on March 28, 2025, and will close on April 03, 2025. The minimum number of shares to be applied is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 28.51% of the post-IPO paid-up capital of the company. The company is spending Rs. 1.04 cr. for this IPO process, and from the net proceeds, the company will utilize Rs. 7.13 cr. for working capital, and Rs. 2.00 cr. for general corporate purposes.

The IPO is solely lead managed by Finshore Management Services Ltd., and Cameo Corporate Services Ltd., is the registrar to the issue. Black Fox Financial Pvt.  Ltd., is the Market Maker for the company. 

Having issued initial equity shares at par value, the company issued further equity shares at a fixed price of Rs. 18 per share in November 2018. It has also issued bonus shares in the ratio of 4 for 1 September 2024. The average cost of acquisition of shares by the promoters is Rs. 2.43, and Rs. 3.20 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 5.00 cr. will stand enhanced to Rs. 6.99 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 35.67 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 47.58 cr. / Rs. 0.52 cr. (FY22), Rs. 53.19 cr. / Rs. 0.93 cr. (FY23), Rs. 41.21 cr. / Rs. 1.40 cr. (FY24). For H1 of FY25 ended on September 30, 2024, it earned a net profit of Rs. 0.62 cr. on a total income of Rs. 21.02 cr. While it posted inconsistency in its top lines for the reported periods, it marked boosted profits for FY24. 

For the last three fiscals, the company has reported an average EPS of Rs. 2.19 and an average RoNW of 20.65%. The issue is priced at a P/BV of 3.84 based on its NAV of Rs. 13.29 as of September 30, 2024, and at a P/BV of 2.12 based on its post-IPO NAV of Rs. 24.04 per share.

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 28.98. Based on FY24 earnings, the P/E stands at 25.50. The issue relatively appears aggressively priced. Total borrowing of Rs. 7.43 cr. as of September 30, 2024 raises alarm.

For the reported periods, the company has posted PAT margins of 1.09% (FY22), 1.75% (FY23), 3.40%, (FY24), 2.93% (H1-FY25), but RoCE margins data is missing from the offer document.

DIVIDEND POLICY:
The company has not paid any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy post listing, based on its financial performance and future prospects. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has no listed peers to compare with.

MERCHANT BANKER’S TRACK RECORD:
This is the 31st mandate from Finshore Management in the last four fiscals.  From the last 10 listings, 1 opened at par and the rest with a premium ranging from 13.89% to 94.44% on the listing date.