Srivasavi Adhesive NSE SME IPO review (May apply)

•    SATL is engaged in industrial specialty self-adhesive tape manufacturing and marketing.
•    It has posted steady growth in its top and bottom lines for the reported periods.
•    Based on its latest financials, the issue appears fully priced. 
•    Well-informed investors may consider parking funds for the medium to long term.

ABOUT COMPANY:
Srivasavi Adhesive Tapes Ltd. (SATL) is engaged in manufacturing/ coating, converting and Die cuts of industrial Specialty self-adhesive tapes, It does customized die cuts of Films, Foams and allied products catering to various industries such as Automotive, Locomotives, Aerospace, Defence, Electrical & Electronics, Renewable Energy, Print & Paper, Food & Pharma, FMCG, White & Brown Goods, Furniture, Retail, Construction, Infrastructure, Sports & Fitness Equipment, Textiles & Leather Industries serves a wide range of pressure sensitive adhesive tapes, BOPP tapes, Eco-Friendly paper Tapes, Filament tapes, Double Side tapes, Packaging tapes, Specialty Protection tapes, Surface Protection tapes, Masking tapes, Specialty Foams/ Films.

The company has two business divisions (i) domestic sales; and (ii) exports. It has a presence in 23 states for the domestic market based on sales made for the period ended September 30, 2022. Internationally it supplies products in 13 countries such as Egypt, France, Indonesia, Kuwait, Poland, Qatar, Spain, Australia, Italy, South Africa, Sri Lanka, the United State of America and UAE based on sales made for the period ended September 30, 2022. 

SATL is also engaged in manufacturing products for third-party customers and the same is supplied according to their specific branding requirements. Its product portfolio includes industrial speciality self-adhesive tapes, which are made out of film, foam, foil, fabric and paper, with different kinds of adhesive systems to suit industrial applications and specification-oriented adhesive tapes. The company make Filament tapes, Fibreglass fabric tapes, polyester tapes, cotton fabric tapes, Double-sided tapes, scrim tapes, reinforced foil tape, reinforced paper tape, high-temperature resistant polyester tapes, Aluminum foil tapes, ECO-friendly paper tapes, BOPP Packaging tapes, Protection tapes, Masking tapes, Foams Tapes etc. As of September 30, 2022, it had 96 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 3780000 equity shares of Rs. 10 each at a fixed price of Rs.41 per share to mobilize Rs. 15.50 cr. The issue opens for subscription on February 23. 2023, and will close on February 28, 2023. The minimum application to be made is for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.67% of the post-issue paid-up capital of the company. SATL is spending Rs. 1.56 cr. for this IPO process and from the net proceeds, it will utilize Rs. 10.84 cr. for working capital and Rs. 3.10 cr. for general corporate purposes. 

Shreni Shares Pvt. Ltd. is the sole lead manager as well as the market maker and Bigshare Services Pvt. Ltd. is the registrar of the issue. 

The company has issued entire equity shares at a par value so far. It has also issued bonus shares in the ratio of 22 for 3 in September 2022. The average cost of acquisition of shares by the promoters is Rs. 1.17 and Rs. 1.20 per share. 

Post-IPO, SATL's current paid-up equity capital of Rs. 10.39 cr. will stand enhanced to Rs. 14.17 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 58.11 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, SATL has posted a turnover/net profit of Rs. 46.35 cr. / Rs. 1.01 cr. (FY20), Rs. 56.67 cr. / Rs. 1.87 cr. (FY21), and Rs. 63.92 cr. / Rs. 3.62 cr. (FY22). For H1 of FY23 ended on September 30, 2022, it earned a net profit of Rs. 1.81 cr. on a turnover of Rs. 30.73 cr. Thus the company has posted growth in its top and bottom lines for the last three fiscals. However, a sudden boost in its bottom line for FY22 raises eyebrows. 

For the last three fiscals, SATL has reported an average EPS of Rs. 2.50 and an average RoNW of 29.93%. The issue is priced at a P/BV of 3.48 based on its NAV of Rs. 11.78 as of September 30, 2022, and at a P/BV of 2.22 based on its post-IPO NAV of Rs. 18.49 per share. 

If we annualize FY23 earnings and attribute it to the post-IPO fully diluted paid-up equity capital, the asking price is at a P/E of 16.08. 

DIVIDEND POLICY:
The company has not declared any dividends since incorporation. It will adopt a prudent dividend policy post-listing, based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Hindustan Adhesive and 3M India as its listed peers, but based on their operational size, it does not consider them comparable with it as they are not truly comparable on an apple-to-apple basis. Both these companies are trading at a P/E of 16.31 and 62.77 (as of February 22, 2023). 

MERCHANT BANKER'S TRACK RECORD:
This is the 18th mandate from Shreni Shares in the last three fiscals (including the ongoing one). Out of the last 10 listings, all were listed at premiums ranging from 2.45% to 101.18% on the listing date.