SVJ Enterprises BSE SME IPO review (Avoid)

•    SVJEL is in the trading of honey and manufacturing of disposable plates of various types.
•    Having posted minuscule performance for FY20 and FY21, it posted a sudden boost in the top and bottom lines.
•    Based on its latest financials, the issue appears attractively priced. 
•    Considering the highly competitive and fragmented segment, the sustainability of such margins are a major concern. 
•    There is no harm in skipping this high-risk/low-return issue. 

PREFACE:
Though this company's final prospectus was filed on February 10, 2023, it was not uploaded till 10.00 am on February 22, 2023, on any public domain i.e. BSE/SEBI/Lead Manager/Company websites, for the reasons best known to the Lead Manager/Exchange/Promoters. 

ABOUT COMPANY:
S V J Enterprises Ltd. (SVJEL) was initially engaged in producing and trading honey. Further, it also switched to the manufacturing of Disposable paper plates. 

Now SVJEL is engaged in the manufacturing of Disposable Silver Laminated Plates, Aluminium Foil Food containers, Aluminium Laminated bags & Pouches, Packaging Pouches etc. Aluminium is 100% recyclable without any loss of its intrinsic properties. The recycling of aluminium products saves energy because the products being recycled usually require much less processing to turn them into usable materials than raw resources. The consequence is a significant reduction in the emission of greenhouse gases. 

The company's products are recyclable, eco-friendly, aesthetically appealing, safe, convenient and comparatively cheaper. A further boost to the product demand comes from changing lifestyles in 2 and 3-tier cities. The success of the system has also resulted in improvements in workplace health and safety at all levels of the company. 

SVJEL has a well-equipped infrastructure to carry out all types of jobs tailor-made to customer requirements as per international standards. As of the filing of this offer document, it had 8 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 1701000 equity shares of Rs. 10 each at a fixed price of Rs. 36 per share to mobilize Rs. 6.12 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 BSE SME. The issue constitutes 30.53% of the post-issue paid-up capital of the company. The company is spending Rs.0.40 cr. for the IPO process and from the net proceedings, it will utilize Rs. 4.70 cr. for working capital and Rs.1.02 cr. for general corporate purposes. 

First Overseas Capital Ltd. is the sole lead manager and Bigshare Services Pvt. Ltd. is the registrar of the issue. Nikunj Stock Brokers Ltd. is the market maker for the company. 

After issuing initial equity shares at par, the company issued further equity shares at Rs. 54 per share in July 2022 and also issued bonus shares in the ratio of 2 for 1 in September 2022. The average cost of acquisition of shares by the promoters is Rs. 0.30 and Rs.0.50 per share. 

Post-IPO, SVJEL's current paid-up equity capital of Rs. 3.87 cr. will stand enhanced to Rs. 5.57 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 20.06 cr. Small equity base hints at longer gestation for migration to the mainboard.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a turnover/net profit of Rs. 0.84 cr. / Rs. - (0.002) cr. (FY20), Rs. 1.52 cr. / Rs. 0.23 cr. (FY21), Rs. 5.03 cr. / Rs. 0.72 cr. (FY22). For H1 of FY23 ended on September 30, 2022, it earned a net profit of Rs. 0.78 cr. on a turnover of Rs. 2.90 cr. Super financial performance achieved for the last 18 months raises eyebrows and concern over sustainability as it is operating in a highly competitive and fragmented segment.

For the last three fiscals, SVJEL has reported an average EPS of Rs. 2.70 (???) and an average RoNW of 31.335% (???) as per the offer document (which appears to have a mismatch). The issue is priced at a P/BV of 5.08 based on its NAV of Rs. 7.09 (???) as of September 2022, and at a P/BV of 1.64 based on its post-IPO NAV of Rs. 21.98 per share. 

If we annualize FY23 earnings and attribute it to the post-IPO fully diluted paid-up equity base, the asking price is at a P/E of around 12.90. Though the issue appears attractively priced it appears to have been window dressing for getting a fancy valuation. 

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 no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
This is the 12th mandate from First Overseas in the last three fiscals (including the ongoing one). Out of the last 10 listings, 1 opened at discount, 2 at par and the rest listed at premiums ranging from 2.50 % to 120.00 % on the listing date.