Sunrest Lifescience NSE SME IPO review (May apply)

•    SLL is in the pharma product marketing business. 
•    It operates under third party model of business, that carries market related risks. 
•    It posted inconsistency in its top lines and the sudden surge in bottom lines for the last 15 months' performance raises concern over its sustainability. 
•    The issue appears fully priced based on FY24 super annualized earnings. 
•    Well-informed/cash surplus investors may park funds for the long term rewards. 

ABOUT COMPANY:
Sunrest Lifescience Ltd. (SLL) is engaged in the marketing of OTC generic pharmaceutical products in the domestic market. The company offers range of pharmaceutical products manufactured by third party manufacturers. It operates in different States of India such as Maharashtra, Gujarat, Madhya Pradesh, Orissa and Rajasthan. The company has presence in these States through Trade Mark registered products and/or products under registration.

SLL deals in Capsules, Tablets, Syrup, Ointment, Gel, Mouth Wash, Solution, Suspension, Dry Powders and Toothpaste. Its product portfolio comprises of vide range of drugs like Anti-Bacterial, Anti Diarrheal, Anti-Fungal, Anti Malerial, Anti Diabetic, Dental Cure, Anti Protozol, Anti Histamine, Anti-Hypertensive drugs, Cosmetic, Anti Parasitic, Multivitamin, Multimineral, Nutraceutical and Anti-inflammatory. It has 18 Registered Trademarks for 32 products.

The products of the Company are sold to Stockists and Super Stockists & in turn it is available at Chemist shops, Dispensaries, Hospitals etc. Company's business operations are supported by one of its Group Company and various third-party manufacturers. It typically works on third-party manufacturing basis or at times purchase order basis with manufacturer of pharma products, depending upon customer's requirement. As of the date of filing this offer document, it had 171 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 1291200 equity shares of Rs. 10 each at a fixed price of Rs. 84 per share to mobilize Rs. 10.85 cr. The issue opens on November 07, 2023, and will close on November 09, 2023. The minimum application to be made is for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 30.09% of the post-IPO paid-up capital of the company. SLL is spending Rs. 0.90 cr. for this IPO process and from the net proceeds, it will utilize Rs. 8.55 cr. for working capital, and Rs. 1.40 cr. general corpora purposes.

The issue is solely lead managed by Mark Corporate Advisors Pvt. Ltd., and Skyline Financial Services Pvt. Ltd. is the registrar of the issue. SVCM Securities Pvt. Ltd. is the market maker for the company. 

The company has issued initial equity shares at par value and has also issued bonus shares in the ratio of 99 for 1 in December 2022, and 2 for 1 in March 2023. The average cost of acquisition of shares by the promoters is Rs. 0.00, Rs. 0.044 per share. 

Post-IPO, SLL's current paid-up equity capital of Rs. 3.00 cr. will stand enhanced to Rs. 4.29 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 36.05 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company posted a total revenue/net profit of Rs. 16.95 cr./ Rs. 0.17 cr. (FY21), Rs. 26.91 cr. / Rs. 0.78 cr. (FY22), and Rs. 24.67 cr. / Rs. 2.04 cr. (FY23). For Q1 of FY24 ended on June 30, 2023, it earned net profit of Rs. 0.75 cr. on a total revenue of Rs. 5.64 cr. The surge in bottom lines for the past 15 months appears to be window dressing to fetch fancy valuations for the IPO. 

For the last three fiscals, the company reported an average EPS of Rs. 4.36 and an average RoNW of 66.31%. The issue is priced at a P/BV of 6.52 based on its NAV of Rs. 12.89 as of June 30, 2023, and at a P/BV of 2.45 based on post-IPO NAV of Rs. 34.28 per share. 

If we attribute annualized FY24 super earnings to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 12. Thus the issue appears fully priced. 

DIVIDEND POLICY:
The company has not declared any dividends for any reported financial years. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Trident Lifeline, Vaishali Pharma, and Chandra Bhagat Pharma as their listed peers. They are trading at a P/E of 32.61, 21.78, and 84.38 (as of November 02, 2023). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 4th mandate from Mark Corporate in the last four fiscals. Out of the last 3 listings, 1 open at par and the rest with premiums ranging from 1.64% to 2.5% on the day of listing.