Valencia India BSE SME IPO review (Avoid)

•    The company is running a resort at Abu where it is expanding its infrastructure to accommodate more guests.
•    The company posted growth in its top and bottom lines for the reported periods.
•    Boosted bottom lines from FY24 onwards raise eyebrows as it is operating in a highly competitive and fragmented business.
•    Based on its recent financial data, the issue appears exorbitantly priced.
•    There is no harm in skipping this pricey and highly risky bet.

ABOUT COMPANY:
Valencia India Ltd. (VIL) is running a resort at Abu which has been leased to Mahindra Holidays. Valencia Abu focuses on providing a high-quality family holiday experience, offering a range of family-friendly amenities. The club features spacious villas, recreational facilities, and diverse dining options that cater to the needs of all family members. With attractions such as a swimming pool, spa, gym, multi-purpose hall, and family lounges, guests can enjoy both relaxation and fun.

Currently, the company has strategically decided to discontinue enrolling new members from the next year. Existing members will still enjoy the same services and benefits as per the previous terms. It has executed an agreement to lease with Mahindra Holidays and Resorts India Limited (Club Mahindra) on December 27, 2023 for a term of 20 years and upon expiry of the term the lease shall be renewable for such further period as may be mutually agreed between both the parties with a Lock in Period of 5 years.

VIL’s business is seasonal business. Generally, summer is a peak season for its business because tourist preferred to go to hill station or resort during summer to overcome the problem of heat of the summer temporarily and in addition to this their children will have summer vacation during summer. Similarly, Diwali vacation and Christmas vacation, it is having heavy demand for reservation. Thus, in peak season of summer Vacation, Diwali vacation and Christmas vacation, it is having almost full occupancy and is not able to meet with the demand of the customer for room booking. On the other hand, during winter and monsoon season, the demand for rooms is very limited and occupancy ratio will be very low. Its income from restaurant and other activities will also be decreased considerably. Thus, its occupancy and income will be high during summer and festival season and very much low during off season like winter and monsoon and consequently income, profitability will be highly volatile during the different seasons.

Valencia Abu also offers personalized services, including customized holiday packages and special family events, ensuring a hassle-free and enjoyable stay. The resort prioritizes safety, comfort, and customer satisfaction, making it an ideal choice for family holidays. Ongoing investments in facilities and activities ensure Valencia Abu continues to provide memorable experiences that encourage repeat visits. As of May 30, 2025, it had 19 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 4449600 equity shares to mobilize Rs. 48.95 cr. at the upper cap. The IPO constitutes of 3999600 fresh equity shares (worth Rs. 44.00 cr. at the upper cap) and an Offer for Sale (OFS) of 450000 shares (worth Rs. 4.95 cr. at the upper cap). The company has announced a price band of Rs. 95 – Rs. 110 per share of Rs. 10 each. The issue opens for subscription on June 26, 2025, and will close on June 30, 2025. The minimum number of shares to be applied is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 34.23% of the post-IPO paid-up capital of the company. From the net proceeds of the fresh equity shares, the company will utilize Rs. 37.42 cr. for development of 15 villas and club house, and the rest for general corporate purposes. 

The IPO is solely lead managed by Interactive Financial Services Ltd., and KFin Technologies Ltd., is the registrar to the issue. Aftertrade Broking Pvt. Ltd. is the market maker as well as a syndicate member. 

The company has issued initial equity shares at par value. It has issued further equity capital at a fixed price of Rs. 3000 per share in March 2024. It has also issued bonus shares in the ratio of 299 for 1 in July 2024.The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 5.00, and Rs. 9.50 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 9.00 cr. will stand enhanced to Rs. 13.00 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 143.00 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 4.19 cr. / Rs. 0.25 cr. (FY22), Rs. 5.23 cr. / Rs. 0.56 cr. (FY23), Rs. 7.12 cr. / Rs. 1.94 cr. (FY24). For 9M of FY25 ended on December 31, 2024, it earned a net profit of Rs. 1.54 cr. on a total income of Rs. 5.56 cr. It posted growth in its top and bottom lines for the last three fiscals. Boosted net profits from FY24 onwards raise eyebrows and concern over its sustainability going forward. 

For the last three fiscals, the company has reported an average EPS of Rs. 1.33 and an average RoNW of 31.20%. The issue is priced at a P/BV of 9.21 based on its NAV of Rs. 11.94 as of December 31, 2024, but its post-IPO NAV data is missing from the documents. The company is operating in a highly competitive and fragmented segment.

If we attribute FY25 super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 69.62. Based on FY24 earnings, the P/E stands at 73.83. The issue relatively appears exorbitantly priced. 

For the reported periods, the company has posted PAT margins of 6.01% (FY22), 10.68% (FY23), 27.28%, (FY24), 27.71% (9M-FY25), and RoCE margins of 14.60%, 21.28%, 28.36%, 18.63% respectively for the referred periods.

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

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has no listed peers to compare with.

MERCHANT BANKER’S TRACK RECORD:
This is the 23rd mandate from Interactive Financial in the last four fiscals, including the ongoing one.  From the last 14 listings, 4 opened at discount, and the rest with a premium ranging from 2.50% to 90.00% on the listing date.