Suratwwala Business Group BSE SME IPO review (Avoid)

•    SBGL primarily focuses on residential and commercial realty projects.
•    Financial data is poor about asking price.
•    Topline has seen inconsistency with declining bottom lines.
•    Issue pricing is exorbitant based on recent financial data.

ABOUT COMPANY:
Suratwwala Business Group Ltd. (SBGL) is a real estate development company primarily focusing on the development of residential and commercial projects in the Pune district. Its business activities comprise of development and sale of residential as well as commercial properties (the 'Development Business') and the maintenance of the properties developed by us (the 'Maintenance Business'). Apart from the development and maintenance business, it also focuses on providing the space on rent such as renting for mobile tower, hoardings and banners on building or renting of the unsold space for short durations.

The company has so far completed one commercial and one residential project, both of which are located in the Pune district. SBGL's Commercial Project, namely, Suratwwala Mark Plazzo - Phase I, located in Hinjawadi, Pune is built on a land area of 4525 sq. mts. and comprises of 9 floors having space for 95 offices, 5 Multipurpose showrooms which can be used as restaurant, shops or showrooms and one rooftop restaurant. It had commenced the construction of Suratwwala Mark Plazzo - Phase I in July'15 and completed it in July'16. The company is now in process to develop Phase II of the said commercial project.

SBGL's Residential Project, Suratwwala Sweet 16 was the first real estate project undertaken by it in September 2008 which was completed in June 2010. The project includes 16 one BHK Apartments which are available in the size of the saleable area of around 678 sq. ft to 712 sq. ft. The total land area of the project is 870 sq. mtrs. Its project portfolio comprises of both affordable housing and premium housing consisting of luxury, high-end and aspirational developments.

The company also undertakes the maintenance of the projects developed by it. Maintenance services involve providing power backup to the residents, security and guard service, housekeeping of the area, maintenance of the club facilities and other related services. For providing these services SBGL charges fees from the owners of the units of each project. Currently, it is providing maintenance service at Mark Plazzo Phase I.

ISSUE DETAILS/CAPITAL HISTORY:
To meets its working capital (Rs. 5.60 cr.), general corpus fund (Rs. 0.60 cr.) needs, SBGL is coming out with a maiden IPO of 4600000 equity shares of Rs.10 each at a fixed price of Rs. 15 per share to mobilize Rs. 6.90 cr. The issue opens for subscription on 03.08.20 and will close on 05.08.20. Minimum application is to be made for 8000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME.

Issue constitutes 26.53% of the post issue paid-up capital of the company. The company will be spending Rs. 0.70 cr. for this IPO process. The issue is solely lead managed by Hem Securities Ltd. and Link Intime India Pvt. Ltd. is the registrar to the issue. Hem Securities Ltd. is also acting as a Market Maker for this company.

The company has issued entire equity at par so far. It has also issued bonus shares in the ratio of 400 shares for every 1 share held in March 2019. The average cost of acquisition of shares by the promoters is Rs.3.23 and Rs. 3.86 per share. Post issue, SBGL's current paid-up equity capital of Rs. 12.74 cr. will stand enhanced to Rs.17.34 cr. With this IPO, the company is looking for a market cap of Rs. 26.01 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, SBGL has posted total revenue/net profits of Rs. 11.20 cr. / Rs. 2.96 cr. (FY18), Rs. 9.13 cr. / Rs. 0.86 cr. (FY19) and Rs. 10.88 cr. / Rs. 0.32 cr. (FY20). Thus with an inconsistent top line, it has shown a declining bottom line that raises major concern. For the last three fiscals, SBGL has posted an average EPS of Rs. 1 and an average RoNW of 9.51%. The issue is priced at a P/BV of 1.24 based on its NAVs of Rs. 12.07 as on 31.03.20 and Rs. 12.08 post issue.

If we attribute FY20 earnings on fully diluted equity post issue, then asking price is at a P/E of around 83 making it exorbitantly priced offer (against the industry average of 12.34).

COMPARISION WITH LISTED PEERS:
As per offer documents, SBGL has shown Ajmera Realty, Arihant Foundation, Art Nirman, Kolte Patil and Puravankara as its listed peers. They are currently trading at a P/Es of 12.52, 10.67, 79.55 (based on its last quote of September 2019), 16.77 and 31.47 (as on 29.07.2020). However, they are no strictly comparable on an apple to apple basis.

MERCHANT BANKER'S TRACK RECORDS:
On merchant banker's performance front, this is the 28th mandate from its stable in the last four fiscals (including the ongoing one). Out of the last 10 listings, four issues opened at par and the rest with premiums ranging from 0.4% to 6.56% on the day of listing.