Transteel Seating NSE SME IPO review (Apply)

•    TSTL is a corporate furniture provider in an organized B2B markets.
•    The company has posted bumper earnings for FY23 and H1-FY24.
•    Based on its recent financial performance, the issue appears fully priced. 
•    With proposed debottle-necking, it is gearing for improved earnings.
•    Investors may park funds for medium to long term rewards.

ABOUT COMPANY:
Transteel Seating Technologies Ltd. (TSTL) is a furniture provider, and has been catering to businesses of all sizes for over two decades. However, in 2019, the company took a considerable leap by adopting a digital-first approach, transforming the way customers engage with its brand. This shift has made it convenient for customers to browse and purchase diverse range of Transteel furniture online.

TSTL is a known furniture provider with over 20 years of corporate and B2B experience. The Company has developed the skill and expertise in making chairs, office furniture and other residential and commercial furniture. Over the years it has continued to focus on its craft performance oriented Tables and Chairs. The furniture solutions are a mix of design, value, and ergonomics. 

The company has experience centers in Ahmedabad, Bangalore, Chennai, Delhi, Hyderabad, Mumbai and Pune. Its customer list includes Infosys, Bosch, ITC, Titan, American Express, Volvo etc. 

TSTL provides wide assortment of products, such as Office Chairs and Office Furniture. As of March 31, 2023, it had 178 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden book-building route IPO of 7140000 equity shares of Rs. 10 each with a price band of Rs. 67 - Rs. 70 per share. The issue consists of 6784000 fresh equity shares (worth Rs. 47.49 cr.) and 356000 equity shares (worth Rs. 2.49 cr.) by an Offer for Sale (OFS). The company mulls mobilizing Rs. 49.98 cr. at the upper cap of the price band. The issue opens for subscription on October 30, 2023, and will close on November 01, 2023. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 35.38% of the post-IPO paid-up capital of the company. 

The company has reserved 714000 (10%) shares for the market maker and from the rest quota, it has allocated not more than 50% for QIBs, not less than 15% for HNIs and not less than 35% for Retail investors. 

From the net proceeds of the IPO funds, the company will use Rs. 6.65 cr. for repayment/prepayment of existing debt, Rs. 14.90 cr. for purchase of equipments to facilitate manufacturing, Rs. 20.00 cr. for working capital and the rest for general corporate purposes.  

The issue is jointly lead managed by Gretex Corporate Services Ltd. and Pantomath Capital Advisors Pvt. Ltd., while Bigshare Services Pvt. Ltd. is the registrar of the issue. Gretex Group's Gretex Share Broking Ltd. is the market maker for the company.   

Having issued initial equity shares at par value, the company issued further equity shares at a fixed price of Rs. 264.30 per share in December 2022, and has also issued bonus shares in the ratio of 4 for 1 in March 2007 and 22 for 1 in June 2023. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 3.79, and Rs. 11.44 per share. 

Post-IPO, TSTL's current paid-up equity capital of Rs. 13.40 cr. will stand enhanced to Rs. 20.18 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 141.25 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, TSTL has posted a total income/net profit/ -(loss) of Rs. 22.88 cr. / Rs. - (0.01) cr. (FY21), Rs. 28.07 cr. / Rs. 1.59 cr. (FY22), and Rs. 59.61 cr. / Rs. 9.09 cr. For H1 of FY24 ended on September 30, 2023, it earned a net profit of Rs. 4.18 cr. on a total income of Rs.31.33 cr.

For the last three fiscals, the company reported an average EPS of Rs. 3.80, and an average RoNW of 27.09%. The issue is priced at a P/BV of 3.28 based on its NAV of Rs. 21.36 as of September 30, 2023. The IPO price band is missing post-IPO NAV data on the lower and upper cap of the price band.

If we annualize FY24 earnings and attribute it to the post-IPO fully diluted paid-up capital of the company, then the asking price is at a P/E of 16.91. Thus the issue appears fully priced. 

For the reported periods, the company has posted a PAT margins of - (0.03) % (FY21), 5.68% (FY22), 15.29% (FY23), and 13.36% (H1-FY24), and RoCE margins of 11.84%, 32.95%, 36.69%, and 15.34% respectively for corresponding periods.

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. 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 Seasons Furnishing, and Shashwat Furnishing as their listed peers. They are trading at a P/E of 11.67 and 32.68 (as of October 25, 2023). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The issue is jointly lead managed by Gretex Corp., and Pantomath Capital. This is the 17th mandate from Gretex Corporate in the last three fiscals.  Out of the last 10 listings, 3 opened at discount, 1 at par, and the rest with premiums ranging from 1.31% to 90% on the day of listing. And, this is 9th mandate from Pantomath Capital in the last three fiscals. Out of the last 8 listings, all listed with premiums ranging from 5.00% to 82.78% on the day of listing.