Amkay Products BSE SME IPO review (May apply)

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Review By Dilip Davda on April 27, 2024

•    APL is in the manufacturing, marketing of comprehensive portfolio of medical devices and related products. 
•    It marked inconsistency in its performance with degrowth in its top line between FY21 and FY23. 
•    9M-FY24 performance appears to be a window dressing to pave the way for fancy pricing of the IPO.
•    Based on FY24 annualized earnings, the issue appears fully priced.
•    Well-informed/cash surplus investors may park moderate funds for the medium to long term rewards.

PREFACE:
Hem Securities Ltd. is one of the leading merchant banker, but perhaps due to its busy schedules with many IPOs around, it fails to comply with draft offer documents as well as RHP on its own website missing till 11th hours. How one can expect mentoring the clients from such Lead Manager. For this IPO, both DRHP and RHP were missing from its website. It also fails to upload the necessary documents on the designated exchanged till the 11th hour. Off late, we also witnessed that its group company only get the market maker assignment. 

ABOUT COMPANY:
Amkay Products Ltd. (APL) is in the business of manufacturing, assembling and marketing a comprehensive portfolio of medical devices, disposables and other Healthcare Products like Face Mask, Alcohol Swabs, Lancet Needles, Nebulizer, Pulse Oximeter, surgeon cap etc. used by healthcare centers, hospitals/clinics, nursing homes etc. widely spread across India. In addition, it is also engaged in branding and marketing of some of the products like Diapers, Plastic Gloves, Suction Machines etc.

The company started its operations in year 2008 with manufacturing and supply of one product in a manufacturing unit taken on rent at Vasai in Mumbai, measuring 980 sq. feet. Gradually, more products were added to its portfolio & for further product expansion, over the period, it shifted to bigger manufacturing units from where it entered into branding & trading segment also along with manufacturing. Later in year 2012, it purchased manufacturing unit at Acchad Industrial Area, Thane, measuring around 20,000 square feet, where currently it is manufacturing & supplying products like Face Mask, Alcohol Swab, Nebulizer Mask, Surgeon/Bouffant Cap, Steel/Plastic Lancet, Air Bed, Apron, Digital Thermometer, Shoe Cover, BP Monitor etc. 

In 2014, it took one warehouse on rent at Acchad Industrial Area, for storage of finished Goods and then in 2016, it purchased another manufacturing unit at Acchad Industrial Area, Thane, measuring around 6000 square feet, where currently it is manufacturing & supplying Bio Bags. The company's product portfolio comprises of more than 30 product including Respiratory Disease Related Medical Devices, Surgical Disposables, Home Healthcare Products and Other Healthcare Products. 

Presently, it is manufacturing more than 20 products along with Branding & trading of more than 10 products. As of December31, 2023, it had approximately 75 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 2292000 equity shares of Rs. 10 each to mobilize Rs. 12.61 cr. at the upper cap. It has announced a price band of Rs. 52 - Rs. 55 per share. The issue opens for subscription on April 30, 2024, and will close on May 03, 2024. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.48% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 0.50 cr. for installation of additional machinery, Rs. 8.00 cr. for working capital, and the rest for general corporate purposes. 

The issue is solely lead managed by Hem Securities Ltd., and Bigshare Services Pvt. Ltd. is the registrar of the issue. HEM group's Hem Finlease Pvt. Ltd. is the market maker for the company. 

The company issued initial equity capital at par and raised further equity in the price range of Rs. 12.50 and Rs. 30 per share (FV of Rs. 10) between March 2009 and June 2018. It has also issued bonus shares in the ratio of 22 for 1 in August 2023. The average cost of acquisition of shares by the promoters is Rs. 0.43, and Rs. 0.54 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 6.36 cr. will stand enhanced to Rs. 8.66 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 47.61 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 40.72 cr. / Rs. 3.13 cr. (FY21), Rs. 36.79 cr. / Rs. 1.47 cr. (FY22), and Rs. 28.25 cr. / Rs. 1.51 cr. (FY23). For 9M of FY24 ended on December 31, 2023, it earned a net profit of Rs. 2.15 cr. on a total income of Rs. 23.86 cr. Thus it marked inconsistency in its top and bottom lines. The euphoria of medical devises is vanishing as the Pandemic impact is vanning out. This impact is seen in degrowth of its top line from FY21 to FY23. 

For the last three fiscals, it has reported an average EPS of Rs. 2.77, and an average RONW of 28.66%. The issue is priced at a P/BV of 3.55 based on its NAV of Rs. 15.51 as of December 31, 2023, and at a P/BV of 2.12 based on its post-IPO NAV of Rs. 25.97 per share (at the upper cap).

If we attribute annualized FY24 earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 16.57, and based on FY23 earnings, the P/E stands at 31.61. Thus the issue is fully priced discounting all near term positives. 

For the reported periods, the company has posted PAT margins of 7.68% (FY21), 4.02% (FY22), 5.42% (FY23), 9.47% (9M-FY24), and RoCE margins of 70.79%, 22.88%, 22.61%, 21.54% respectively for the referred 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 Hemant Surgical and QMS Medical as their listed peers. They are trading at a P/E of 19.3 and 21.5 (as of April 26, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 39th mandate from Hem Securities in the last three fiscals (including the ongoing one), out of the last 10 listings, 1 opened at discount, and the rest with premiums ranging from 4.63% to 90% on the date of listing. 

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