Uma Exports IPO review (Avoid)

•    UEL is in the business of exports of building materials, agri and commodity products. 
•    Its financial track record has marked inconsistency.
•    Super earnings reported for the last two and half fiscal raises concern over sustainability. 
•    Issue pricing appears aggressive despite attributing to its super earnings. 
•    QIBs have turned down this IPO support, indicating something is fishy. 

ABOUT COMPANY:
Uma Exports Ltd. (UEL) was initially engaged in the business of exports of building materials i.e. marble, granite, marble chips and other construction material to neighbouring countries. From 1997 it also started exports of agricultural produce and commodities i.e. wheat, rice, sugar, spices etc. It is also importing lentils, faba beans, black urad dal, tur dal etc. for marketing in India. 

It operates on a B2B model. To mark its overseas presence, it acquired 100% shareholding of U.E.L. International FZE of UAE. As of the date of RHP, UEL has 17 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 50.00 cr.) and general corporate purposes, UEL is coming out with a maiden IPO of 8823540 equity shares of Rs. 10 each (at the upper cap) via book building route to mobilize Rs. 60.00 cr. The company has fixed the price band of Rs. 65 - Rs. 68 and minimum application to be made is for 220 shares and in multiples thereon, thereafter. The issue opens for subscription on March 28, 2022, and will close on March 30, 2022. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 26.10% of the post issue paid-up capital of the company. As per RHP, the company planned allocation of 50% for QIBs, 15% for HNIs and 35% for Retail investors but it appears due to muted response from QIBs, it has not revised its allocation to 2% for QIBs, 29% for HNIs and 69% for Retail investors. This indicates the non-acceptance of IPO valuations by QIBs, opines primary market circles. The company gave an ad to this impact just within 3 days after its first ad for IPO opening. This indicates something went wrong somewhere.  

The issue is solely lead managed by Corporate Capitalventures Pvt. Ltd. and Mas Services Ltd. is the registrar to the issue. 

Having issued initial equity at par, the company issued further equity in the price range of Rs. 12 to Rs. 100 per share between February 2002 and March 2014. It has also issued bonus shares in the ratio of 1 for 1 in March 1997, 3 for 2 in March 2006, 2 for 1 in February 2008, 1 for 1 in December 2008 and 1 for 1 in March 2011. The average cost of acquisition of shares by the promoters is Rs. 0.16 and Rs. 7.15 per share. 

Post-IPO, UEL's current paid-up equity capital of Rs. 24.99 cr. will stand enhanced to Rs. 33.81 cr. Based on the upper cap of the IPO pricing, the company is looking for a market cap of Rs. 229.91 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, UEL has posted turnover/net profits of Rs. 329.37 cr. / Rs. 2.87 cr. (FY19), Rs. 810.31 cr. / Rs. 8.33 cr. (FY20) and Rs. 752.03 cr. / Rs. 12.18 cr. (FY21). The first half of FY22 ended on September 30, 2021, it earned a net profit of Rs. 8.97 cr. on a turnover of Rs. 523.94 cr. The sudden jump in margins for the last two and a half fiscals raises concern. It has marked growth in its operations at a CAGR of 51.1% between 219 to 2021 and its net profit posted growth at a CAGR of 105.45% for the said period. Its export revenues came down from Rs. 164.43 cr. (58.01%) in FY17 to Rs. 71.68 cr. (9.66%) in FY21. For the first half of the current fiscal, its export revenue stood at Rs. 82.44 cr. (15.81%).  

For the last three fiscals, it has posted an average EPS of Rs. 3.73 and an average RoNW of 14.49%. The issue is priced at a P/BV of 2.15 based on its NAV of Rs. 31.60 as of September 30, 2021.

If we annualize FY22 earnings and attribute it to the post IPO equity, then the asking price is at a P/E of 12.81 making it an aggressively priced issue. 

DIVIDEND POLICY:
The company has not paid any dividends for the reported periods of RHP. It will adopt a prudent dividend policy post listing based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per offer documents, it has shown Sakuma Exports as its listed peer. It is currently trading at a P/E of 19.8 (as of March 25, 2022). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the second mandate from Corporate Capitalventures in the last three fiscals. The only listing took place at par on a listing day.