Swashthik Plascon BSE SME IPO review (May apply)

•    SPL is engaged in pet bottles and preforms that is highly competitive segment. 
•    The sudden boost in its profits for the last 18 months raises eyebrows. 
•    FY23, it marked bumper profits on declined top line, that hints at some window dressing.
•    Based on annualized FY24 earnings, the issue appears aggressively priced. 
•    Well-informed, cash surplus investors may consider parking of funds. 

ABOUT COMPANY:
Swashthik Plascon Ltd. (SPL) is mainly engaged in the business of manufacturing of a wide range of PET Bottles and PET Preforms which includes PET Bottles for Pharmaceutical application, Liquor application, FMCG Packaging, House Hold applications, Dish wash liquid packaging, Repellent dispenser, etc., and PET Preforms for Soft Drinks bottles, Packaged Drinking Water bottle and Juice bottles.

The company manufactures Bottles and Preforms in Continuous Injection Stretch Moulding Machines with advanced Technology using 100% virgin food grade quality material. Production takes place in an enclosed dust proof environment with quality testing at regular intervals. The products are packed in CFC trays with POF shrink film & then carefully packed in corrugated boxes. Overall colour migration test, heavy metal testing and analysis is done to ensure SPL gives best quality finished products to Valued Customers. As of September 30, 2023, it had 60 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden book building route IPO of 4739200 shares of Rs. 10 each and has announced a price band of Rs. 80 - Rs. 86 per share. It mulls mobilizing Rs. 40.75 cr. at the upper cap. The issue opens for subscription on November 24, 2023, and will close on November 29, 2023. The minimum application to be made is for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.98% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO funds, it will utilize Rs. 14.48 cr. for capex for new manufacturing unit, Rs. 10.40 cr. for setting up of solar power plant, Rs. 1.04 cr. new plant and machinery for existing unit, Rs. 10.44 cr. for working capital, and the rest for general corporate purposes. After reserving 238400 shares for the market maker, the company has allocated net portion of the IPO as not more than 50% to QIBs, not less than 15% for HNIs and not less than 35% for Retail investors. 

The issue is solely lead managed by Shreni shares Ltd. and Bigshare Services Pvt. Ltd. is the registrar of the issue. Nikunj Stock Brokers Ltd. is the market maker for the company. The registrar and transfer agent of the company is Cameo Corporate Services Ltd. 

Having issued initial equity shares at par, the company allotted further equity shares at a fixed price of Rs. 15.67 in March 2023. The average cost of acquisition of shares by the promoters is Rs. 0.00, Rs. 5.33, Rs. 10.00, Rs. 12.45, Rs. 12.59, Rs. 13.31, and Rs. 14.81 per share. 

Post-IPO, SPL's current paid-up equity capital of Rs. 12.82 cr. will stand enhanced to Rs. 17.56 cr. ased on the upper cap of IPO price band, the company is looking for a market cap of Rs. 151.05 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, SPL has (on a standalone basis) posted a total income/net profit of Rs. 35.34 cr. / Rs. 0.07 cr. (FY21), Rs. 49.87 cr. / Rs. 0.13 cr. (FY22), and Rs. 45.89 cr. / Rs. 3.02 cr. (FY23). For H1 of FY24, it earned a net profit of Rs. 3.82 cr. on a total income of Rs. 23.77 cr. 

While on a consolidated basis, it posted a total income/net profit of Rs. 45.89 cr. / Rs. 3.02 cr. (FY23) and it earned a net profit of Rs. 5.28 cr. on a total income of Rs. 69.74 cr. for H1 of FY24. 

For the last three fiscals, the company has (on a standalone basis) reported an average EPS of Rs. 2.59 and an average RoNW of 8.35%. The issue is priced at a P/BV of 4.60 based on its NAV of Rs. 18.74 as of September 30, 2023 (on a standalone basis), and at a P/BV of 2.33 based on its post-IPO NAV of Rs. 36.89 per share (at the upper cap). ON a standalone basis, the company posted PAT margins of 0.20% (FY21), 0.26% (FY22), 6.62% (FY23) and 17.68% (H1-FY24). The sudden boost for the last 18 months raises concern over the sustainability. What is more surprising is the boosted profits on declined top line for FY23. This raises doubt of window dressing to pave the way for fancy valuations.

While on a consolidated basis the issue is priced at a P/BV of 4.30 based on its NAV of Rs. 19.99 as of September 30, 2023, and at a P/BV of 2.28 based on its post-IPO NAV of Rs. 37.80 per share (at the upper cap).

If we attribute consolidated super FY24 annualized earnings to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 14.29. While on the basis of standalone annualized earnings of FY24, P/E is at 19.77. Thus the issue is aggressively priced even with super earnings for FY24.

DIVIDEND POLICY:
The company has not declared any dividends in the last five 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 Technopack Poly as their listed peer. It is trading at a P/E of 19.41 (as of November 20, 2023). However, it is not comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 24th mandate from Shreni Shares in the last three fiscals (including the ongoing one). Out of the last 10 listings, 1 listed at a discount and the rest listed at premiums ranging from 2.74% to 143.24% on the day of listing.