Stallion India IPO review (Apply)

•    The company is engaged in the business of variety of refrigerant and industrial gases.
•    It has created a niche place in the segment with quality and economical products.
•    With a major shift in increasing its offerings, it has focused on high margin products.
•    With its planned strategy, the management is confident of improving its earnings.
•    Based on its recent financial performance, the issue appears reasonably priced.
•    Investors may park funds for medium to long term. 

PREFACE:
Though this IPO is opening on January 16, 2025, and its offer document is dated January 11, 2025, it was not available on any web till the eve of January 13, on any public domain, and designated exchange had not uploaded the same till this morning i.e. January 14, 2025. The IPO announcement ad was published on January 14, 2025. This kind of bad practice is being followed and there are no watch or control by the watchdog body. This is really surprising.

ABOUT COMPANY:
Stallion India Fluorochemicals Ltd. (SIFL) is into the business of selling Refrigerant and Industrial Gases and related products. Its primary business consists of debulking, blending and processing of Refrigerant and Industrial gases, selling of pre filled cans and small Cylinders/ Containers. It has four facilities located in Khalapur (Maharashtra), Ghiloth (Rajasthan), Manesar (Haryana) and Panvel (Maharashtra). Each of these facilities is designed and equipped to store gases in a controlled environment, ensuring adherence to the safety standards.

Its gases find application in various industries/segments such as Air conditioners & Refrigerators, Fire Fighting, Semiconductor manufacturing, Automobile Manufacturing, Pharma and Medicals, Glass bottle manufacturing, Aerosols and Spay foam. With over two decades of experience in Fluorochemicals debulking bottling & distribution, the company specializes in refrigerants gases by blending two or more gases to create new formulations. 

It offers a variety of products that make the company distinct in the industry. By using knowledge of its clients' industries and skills in gases and engineering, it provides customized solutions to help businesses work better. Company’s goal is to make operations run smoother and improve productivity. At the same time, it cares about the environment and helps reduce energy expenses. While it has 20 employees on its payroll, it has additional 40 employees at various plants and contract workers as and when needed. As of September 30, 2024, it handled 120 customers against 171 as at March 31, 2024.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route combo IPO of 17858740 fresh equity shares (worth Rs. 160.73 cr. at the upper cap) and an Offer for Sale (OFS) of 4302656 shares (approx. Rs. 38.72 cr. at the upper cap). Thus the overall size of the IPO shall be of 22161396 shares worth Rs. 199.45 cr. at the upper cap. The company has announced a price band of Rs. 85 – Rs. 90 per equity shares of Rs. 10 each. The issue opens for subscription on January 16, 2025, and will close on January 20, 2025. The minimum application to be made is for 165 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 27.94% of the post-IPO paid-up equity capital. From the net proceeds of the fresh equity issue, the company will utilize Rs. 95.00 cr. for incremental working capital, Rs.29.16 cr. for capex on semi-conductor and specialty gas debulking and blending facility, Rs. 21.18 cr. for capex on refrigerant debulking, and the rest for general corporate purposes. 

The sole Book Running Lead Manager (BRLM) to this issue is Sarthi Capital Advisors Pvt. Ltd., while Bigshare Services Pvt. Ltd. is the registrar to the issue. Khandwala Securities Ltd. is the syndicate member.

Having issued initial equity shares at par value, the company issued/converted further equity shares at a fixed price of Rs. 51.20 per share in September 2023. It has also issued bonus shares in the ratio of 3 for 4 in January 2018, and 3.5 for 1 in January 2023. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 1.27, Rs. 5.56, and Rs. 6.79 per share. 

Post-IPO, its current paid-up equity capital of Rs. 61.47 cr. will stand enhanced to Rs. 79.33 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 713.93 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 186.34 cr. / Rs. 21.11 cr. (FY22), Rs. 226.06 cr. / Rs. 9.75 cr. (FY23), and Rs. 236.23 cr. / Rs. 14.79 cr. (FY24). For H1 of FY25 ended on September 30, 2024, it earned a net profit of Rs 16.57 cr. on a total income of Rs. 141.53 cr. 

For the last three fiscals, the company has posted an average EPS of Rs. 2.50 and an average RoNW of 16.64%. The issue is priced at a P/BV of 4.11 based on its NAV of Rs. 21.89 as of September 30, 2024, and at a P/BV of 2.42 based on its post-IPO NAV of Rs. 37.22 per share (at the upper cap).

If we attribute FY25 annualized earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 21.53, and based on FY24 earnings, the P/E stands at 48.39. Thus the issue is reasonably priced. 

The company reported PAT margins of 11.33 % (FY22), 4.31 % (FY23), 6.26% (FY24), 11.70% (H1-FY25), and RoCE margins of 49.22%, 15.80%, 13.96%, 11.58% for the referred periods, respectively. 

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 based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Navin Fluorine, SRF Ltd., and Gujarat Fluorochem, as their listed peers. They are trading at a P/E of 83.2, 65.8, and 98.2 (as of January 14, 2025). However, they are not truly comparable on an apple-to-apple basis.  

MERCHANT BANKER’S TRACK RECORD:
This is the 8th mandate from Sarthi Capital in the last four fiscals. Out of the last 7 listings, 1 opened at discount and the rest with premiums ranging from 49.12% to 333.05% on the date of listings.