Technopack Poly BSE SME IPO review (May apply)

•    TPL is in the business of manufacturing and supplying PET Preforms and CCM Caps.
•    Sudden boost in its bottom lines for the last 16 months raises concern over sustainability.
•    Based on its recent super financial results, the issue appears lucratively priced. 
•    Cash surplus/risk seeker may consider investment for the medium to long term. 

ABOUT COMPANY:
Technopack Polymers Ltd. (TPL) is the manufacturer & supplier of PET Preforms and CCM Caps with state-of-the-art facilities. The Company has fully automatic machines for the manufacture of PET Preform & Cap Closure at Morbi, Jambudiya, Rajkot, Gujarat- 363642

TPL manufactures high-quality PET preform on 48 cavity state-of-art, world-class Milacron Machine and ACME Mould with the "TECHNOPET" brand name. The Company also manufactures high-quality CCM CAP. As of July 31, 2022, it had 9 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its funding needs for the purchase of the SACMI CCM24S-F plant for manufacturing HDPE Beverages closures (Rs. 6.38 cr.), working capital (Rs. 0.74 cr.), and general corporate purpose (Rs. 0.25 cr.), TPL is coming out with a maiden IPO of 1430000 equity shares of Rs. 10 each at a fixed price of Rs. 55 per share to mobilize Rs. 7.87 cr. The issue opens for subscription on November 02, 2022, and will close on November 07, 2022. A minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes xx% of the post-issue paid-up capital of the company. TPL is spending Rs. 0.50 cr. for this IPO process. 

The sole lead manager for this issue is ISK Advisors Pvt. Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Sunflower Broking Pvt. Ltd. is the market maker for this company. 

Having issued initial equity at par, the company issued further equity at a price of Rs. 55 per share in July 2022 and has also issued bonus shares in the ratio of 227 for 170 shares in the same month. The average cost of acquisition of shares by the promoters is Rs. 20.98 and Rs. 22.82 per share. 

Post-IPO, TPL's current paid-up equity capital of Rs. 3.97 cr. will stand enhanced to Rs. 5.40 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 29.70 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, TPL has reported a turnover/net profit of Rs. 3.55 cr. / Rs. 0.04 cr. (FY20), Rs. 6.16 cr. / Rs. 0.02 cr. (FY21), and Rs. 10.03 cr. / Rs. 2.11 cr. (FY22). For the first four months of FY23 ended on July 31, 2022, it earned a net profit of Rs. 0.94 cr. on a turnover of Rs. 4.82 cr. The sudden boost in its bottom lines for the last 16 months raises concern over sustainability. 

For the last three fiscals, TPL has posted an average EPS of Rs. 3.26 and an average RoNW of 36.38%. The issue is priced at a P/BV of 2.80 based on its NAV of Rs. 19.63 as of July 31, 2022, and at a P/BV of 1.90 based on its post-IPO NAV of Rs. 29.00. 

If we annualize FY23 earnings and attribute it to the fully diluted post-IPO paid-up equity capital, then the asking price is at a P/E of around 10.54.

DIVIDEND POLICY:
The company announced a maiden dividend of 10% on July 31, 2022. 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 documents, TPL has shown Cool Caps as their listed peer. It is currently trading at a P/E of around 64.41 (as of October 25, 2022). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 3rd mandate from ISK Advisors in the last three fiscals (including the ongoing one). Out of the last 2 listings, all were listed with premiums ranging from 1.86% to 30.73% on the day of listing.