Vandan Foods BSE SME IPO review (Avoid)

•    The company that was in catering business, trading of agro commodities before venturing in to castor oil manufacturing.
•    It posted growth in its top and bottom lines for the reported periods.
•    Quantum jump in its top and bottom lines from FY24 onwards (i.e., in pre-IPO year) raise eyebrows and concern over its sustainability.
•    Based on its recent financial data, the issue appears aggressively priced.
•    There is no harm in skipping this pricey issue being “High Risk/Low Return” bet

ABOUT COMPANY:
Vandan Foods Ltd. (VFL) – the Company was engaged in the catering business. However, from financial year 2018 till financial year 2023, it was engaged in the trading of agro commodities. Thereafter, from the financial year 2024 its current management has been actively managing the business of manufacturing of Castor Oil and its derivatives. It is currently operating on a B2B business model primarily focusing on Refined F.S.G. Castor Oil, Castor De Oil Cake.  

Castor Oil, non-volatile fatty oil obtained from the seeds of the castor bean, Ricinus Communis, of the spurge family (Euphorbiacee). It is used in the production of synthetic resins, plastics, fibres, paints, varnishes and various chemicals including drying oils and plasticizers. Castor Oil is viscous, has a clear and colourless to amber or greenish appearance, a faint characteristic odour and a bland but slightly acrid taste, with a usually nauseating aftertaste. Castor Oil is obtained from castor beans either by pressing or by solvent extraction. 

In addition to the uses mentioned above, castor oil and its derivatives are used in cosmetics, hair oils, fungistatic (fungus-growth-inhibiting) compounds, embalming fluid, printing inks, soap, lubricants, greases and hydraulic fluids, dyeing aids and textile finishing materials. Due to its renewability and high versatility in addition to being the only commercial source of a hydroxylated fatty acid, castor oil has been used as a vital raw material for the chemical industry. Castor oil has traditionally been used as a remedy for treating various skin conditions and infections, relieving constipation, and increasing the health of hair.

As of December 31, 2024, it had 16 employees on its payroll.  It also engages casual labourers as and when needed. The company has various litigations amounting to Rs. 10+ cr. Its capacity utilization for the period ended December 31, 2024 was 70.29%.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 2640000 equity shares of Rs.10 each at a fixed price of Rs. 115 per share to mobilize Rs. 30.36 cr. The issue opens for subscription on June 30, 2025, and will close on July 02, 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 31.49% of the post-IPO paid-up capital of the company. The company is spending Rs. 2.99 cr. for this IPO process, and from the net proceeds, the company will utilize Rs. 8.57 cr. for working capital, Rs. 3.00 cr. for repayment/prepayment of certain borrowings, Rs. 8.29 cr. for expansion of existing unit, and Rs. 7.51 cr. for general corporate purposes. 

The IPO is solely lead managed by Nirbhay Capital Services Pvt. Ltd., and Bigshare Services Pvt. Ltd., is the registrar to the issue. Aftertrade Broking Pvt. Ltd. is the market maker.

Having issued initial equity shares at par value. The company has issued further equity capital in the price range of Rs. 50 – Rs. 125 per share between February 2023, and March 2024. It has also issued bonus shares in the ratio of 10 for 1 in September 2023, and 1 for 1 in July 2024. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 5.10, Rs. 5.40, Rs. 5.68, and Rs. 25.00 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 5.75 cr. will stand enhanced to Rs. 8.39 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 96.43 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit/ - (loss) of Rs. 1.61 cr. / Rs. – (0.11) cr. (FY22), Rs. 11.59 cr. / Rs. 0.64 cr. (FY23), Rs. 48.73 cr. / Rs. 2.64 cr. (FY24). For 9M of FY25 ended on December 31, 2024, it earned a net profit of Rs. 4.54 cr. on a total income of Rs. 72.66 cr. It posted growth in its top and bottom lines for the last three fiscals. Boosted net profits from FY24 onwards in a pre-IPO periods, raise eyebrows and concern over its sustainability going forward. Its debt of Rs. 13.89 cr. as of December 31, 2024, raise alarm.

For the last three fiscals, the company has reported an average EPS of Rs. 2.72 and an average RoNW of 64.40%. The issue is priced at a P/BV of 4.72 based on its NAV of Rs. 24.38 as of December 31, 2024, and at a P/BV of 2.17 based on its post-IPO NAV of Rs. 52.91 per share.

If we attribute FY25 super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 15.95. Based on FY24 earnings, the P/E stands at 36.51. The issue relatively appears aggressively priced. 

For the reported periods, the company has posted PAT margins of - (7.75) % (FY22), 5.54% (FY23), 5.43%, (FY24), 6.24% (9M-FY25), and RoCE margins of – (4.00) %, 33.42%, 37.33%, 24.20% respectively for the referred periods. Thus, the company has posted unrealistic margins.

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 shown NK Industries, and Jayant Agro, as their listed peers. They are trading at a P/E of NA and 14.4 (as of June 27, 2025). However, they are not truly comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORD:
This is the 3rd mandate from Nirbhay Capital in the last three fiscals, including the ongoing one.  From the last 2 listings, both opened at a discount on listing date. Thus, the LM has a poor track record.