V-Marc NSE SME IPO review (May apply)

•    VMIL is engaged in the manufacturing and marketing of wires and cables.
•    The segment is highly competitive with many big and unorganized players.
•    The company has posted average financial performance so far.
•    LM is coming out with SME IPO after a gap of over one year.
•    Investors may consider investing with a long term perspective.

PREFACE:
The lead manager of this IPO remained silent for more than a year. THE last FPO from its stable was in the month of January 2020. According to market sources, this was simply due to the dull sentiment prevalent for the SME IPOs for all these periods, where it maintained its dominance.  With this book building process IPO, it is re-entering the space, as it appears.

ABOUT COMPANY:
V Marc India Ltd. (VMIL) (erstwhile known as Asian Galaxy Pvt. Ltd.) is engaged in manufacturing and marketing of wires and cables under the brand name V-Marc. V-Marc sells a diverse range of products which includes single and multi-strand cables, CCTV cables, LAN cables, coaxial cables, telephone switchboards, power cables, solar and more. V-Marc has two manufacturing facilities based in Haridwar, Uttarakhand.

V-Marc's portfolio focuses on quality and has a diversified customer base ranging from PSUs, retailers, distributors, EPC contractors catering to sectors like power, railways, real estate and telecom. The Company supplies its products across 21 states in India. V-Marc has a wide dealer network of comprising of over 650 dealers present across 12 states in the country. V-Marc has secured long term working relationships with its dealers primarily due to its wide product portfolio, technically specified quality products, the advantage of better pricing and delivery terms.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans of capital expenditure for new manufacturing facility (Rs. 15.00 cr.), working capital (Rs. 5.00 cr.) and general corpus fund needs, the company is coming out with a maiden IPO via book building issue to mobilize Rs. 23.40 cr., at the upper price band. The company will be issuing 6000000 shares of Rs. 10 each in a price band of Rs. 37 - Rs. 39 per share. The issue opens for subscription on March 25, 2021, and will close on March 31, 2021. Minimum application is to be made for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.33% of the post issue paid-up capital of the company. 

The issue is solely lead managed by Pantomath Capital Advisors Pvt. Ltd., and Bigshare Services Pvt. Ltd. Is the registrars to the issue. Pentagon Stock Brokers Pvt. Ltd. (formerly known as Pantomath Stock Brokers Pvt. Ltd.)  is acting as a market maker for this company.

After having issued initial equity at par, the company raised further equity (840000 shares) at a price of Rs. 39 per share as pre-IPO placement in the month of March 21. The company has already spent Rs. 0.38 cr. For issue expenses from internal accruals and will be settling the final tally post IPO. The average cost of acquisition of shares by the promoters is Rs. 10 per share.

Post issue, VMIL's current paid-up capital of Rs. 16.79 cr. Will stand enhanced to Rs. 22.78 cr. At the upper price band, the company is looking for a market cap of Rs. 88.86 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, VMIL has posted turnover/net profits of Rs. 143.51 cr. / Rs. 2.24 cr. (FY18), Rs. 205.26 cr./ Rs. 4.89 cr. (FY19) and Rs. 171.64 cr. / Rs. 4.65 cr. (FY20). For the first nine months ended on December 31, 2020, it has earned a net profit of Rs. 4.02 cr., on a turnover of Rs. 130.63 cr. The company has posted inconsistency in its working for these periods.

For the last three fiscals, the company has posted an average EPS of Rs. 2.84 and an average RoNW of 13.94 %. The issue is priced at a P/BV of 1.63 based on its NAV of Rs. 23.95 as of December 31, 2020, and at a P/BV of 1.37 based on post issue NAV of Rs. 28.47 (based on upper price band).

If we annualize the latest earnings and attribute it to fully diluted post issue equity capital, then the asking price is at a P/E of around 16.60.

COMPARISION WITH LISTED PEERS:
As per offer documents, VMIL has shown Cords Cables, Ultracab and CMI Ltd., as its listed peers. They are currently trading at a P/E of 7.32, 93.82 and 00 (as of March 23, 2021.) However, they are not truly comparable on an apple-to-apple basis.

DIVIDEND POLICY:
For FY18 to FY20 so far, the company has not paid any dividend. It will follow a prudent dividend policy post IPO based on its performance and future prospects.

MERCHANT BANKER'S TRACK RECORDS:
This is the 30th mandate from its stable in the last three fiscals (including the ongoing one). Out of the last 10 listings, 1 opened at discount, 1 at par and the rest with a premium ranging from 2.11% to 11.11% on the day of listings.