TGIF Agri BSE SME IPO review (May apply)

•    This horticulture company is engaged in open farming of certain fruits and vegetables. 
•    It posted minuscule top lines with an average 53% net earnings, which is very surprising.
•    The company is operating in a highly competitive and fragmented segment. 
•    Based on FY24 annualized super earnings, the issue appears fully priced. 
•    Well-informed/cash surplus investors may park moderate funds for the medium to long term rewards.

ABOUT COMPANY:
TGIF Agribusiness Ltd. (TAL) is primarily a horticulture company engaged in open farming of certain fruits and vegetables. Its farm land is spread over an area of over 110 acres and is situated in the vicinity of three villages i.e. Ajari, Kasindra and Kojra, all of which are located in the tehsil of Pindwara, district Sirohi, Rajasthan. It has obtained all farm lands on lease basis from promoters. The company is mainly engaged in the farming of pomegranate which contribute to more than 95% of its revenue from operations.

Apart from the farming of pomegranate it is also engaged in the farming and cultivation of dragon fruits and Sagwan trees. In the last three financial years, it has also gown and harvested lemon, water melon and chilly.

The company follows different farming practices so as to produce quality fruits such as fruit thinning, wherein some portion of fruit crop from the tree is removed before its maturity, in order to improve the general size and quality of the remaining crop, leaf vegetative growth practice to reduce tolerance level of external appearance, protecting fruit with protection material, measuring soil moisture to determine the water application. 

With the growing consumer knowledge, interest, and purchasing power the demand for the fruits have also increased. This, in turn, played an important role in increasing its product demand in the market. It currently sells majority of products to retailers, wholesalers, retail chain stores, hypermarkets and mandis. Under the B2B model all these customers visit the farms for evaluating the farm and the produce and based on price negotiations prices are finalized with the customers. it also has plans to sell produce through B2C model under the name of Direct2home service, where the local customers can place the order and the products will be picked, packed from the farm and delivered to the customer home directly. As of November 30, 2023, it had 8 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 687600 equity shares of Rs. 10 each at a fixed price of Rs. 93 per share to mobilize Rs. 6.40 cr. The issue opens for subscription on May 08, 2024, and will close on May 10, 2024. The minimum application to be made is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.57% of the post-IPO paid-up capital of the company. The company is spending Rs. 0.53 cr. for this IPO process, and from the net proceeds, it will utilize Rs. 2.06 cr. for purchase of agricultural equipments and irrigation system, Rs. 2.27 cr. for working capital, and Rs. 1.54 cr. for general corporate purposes. 

The issue is solely lead managed by Hem Securities Ltd., and Bigshare Services Pvt. Ltd. is the registrar of the issue. HEM Group's Hem Finlease Pvt. Ltd. is the market maker for the company. 

The company has issued/converted entire equity capital at par so far. The average cost of acquisition of shares by the promoters is Rs.10 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 1.90 cr. will stand enhanced to Rs. 2.59 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 24.07 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 1.82 cr. / Rs. 0.38 cr. (FY21), Rs. 2.07 cr. / Rs. 1.15 cr. (FY22), Rs. 2.32 cr. / Rs. 1.30 cr. (FY23). For 8M of FY24 ended on November 30, 2023, it earned a net profit of Rs. 0.81 cr. on a total income of Rs. 1.72 cr. (This financial data is for erstwhile TGIF Agribusiness LLP.)

For the last three fiscals, it has reported an average EPS of Rs. 5.79, and an average RONW of 123.45%. The issue is priced at a P/BV of 9.3 based on its NAV of Rs. 10.00 as of November 30, 2023, and at a P/BV of 2.90 based on its post-IPO NAV of Rs. 32.06 per share.

If we attribute annualized FY24 super earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 19.70. Thus the issue appears fully priced. 

For the reported periods, the company has posted PAT margins of 21.38% (FY21), 57.00% (FY22), 56.63% (FY23), 47.70% (8M-FY24), however, the document is missing RoCE margins data for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends since incorporation. In December 2023, it has already adopted 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 Raghuvansh Agro and Bangalore Fort Farms, as their listed peers. They are trading at a P/E of 38.3 and 119.0 (as of May 03, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 40th mandate from Hem Securities in the last three fiscals (including the ongoing one), out of the last 10 listings, 1 opened at discount and the rest with premiums ranging from 4.63% to 90% on the date of listing.