Annapurna Swadisht NSE SME IPO review (May apply)

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Review By Dilip Davda on September 10, 2022

•    ASL is in the manufacturing and marketing of snacks and food products.
•    It has marked tremendous growth in the last two fiscals.
•    The segment is getting crowded with many unorganized players.
•    The issue appears greedily priced based on its financial data so far.
•    Risk seeker/cash surplus investors may consider parking funds for the long term.

PREFACE:
In view of the rising fancy and recent sudden mad rush for SME IPOs, this company is coming out with a book-building process IPO that has an allocation for QIBs 50%, HNIs 15%, and Retail investors 35%. Since the announcement of its IPO plans, the company has been the talk of the town. It would be of great interest to see the final subscription tally of this IPO, which may lay similar trends for upcoming SME IPOs with good standing and calibre. With the greedy pricing of the IPO, the company is trying to encase the ongoing boom for SME IPOs. 

The company has smartly twisted some of its brand names to avoid any litigations. This is an East region-centric FMCG company.  I am tempted to mention the case of Jhandewalas Foods, a 125-year-old FMCG company (that went public in January 2018 and created a record of 278.82 times subscriptions) from Jaipur. It has disappointed investors with its recent dismal performance with trades around Rs. 7 per share against the offer price of Rs. 55 per share. 
 
ABOUT COMPANY:
Annapurna Swadisht Ltd. (ASL) is a manufacturer of snacks and food products, namely, Gohona Bori, Fryums, cakes, candies and namkeen, and chips. Its key raw materials include refined flour, palm oil, spices, and laminates. The Company uses raw materials of premium quality sourced from reputed local suppliers, which help it to ensure the quality of its products.

Currently, the company has two manufacturing units. The Company has been formed upon conversion of Partnership Firm into Company vide a certificate of incorporation dated February 11, 2022.

ASL's products are marketed under its own brand names Jackpot, Chatpata Moon, Balloon, Finger, Rambo, Makeup Box, Dhamaka, Phoochka, Jungle Adventures, Ringa, Bachpan Ka Pyaar, Kurchure, Cream Filled Cake Vanilla, Cream Filled Cake Litchi, Cream Filled Cake Mix Fruit, Cream Filled Cake Orange, Cream Filled Cake Chocolate, Mixed Fruit Flavoured Cake, Chocolate Flavoured Sliced Cake, Pluss, Malai Pop, Imly Pop, Coconut Crunch, Kaju Candy, Coffico, Masala Teekha, Salted Chips, Paprika Spices, Tomatina Classic, American Cheese, Gram Gathiya, Gram Chana Jor, Crispy Diet Chidwa, Gram Bhawnagri Sev, Gram Badam Pokora And Gram Masala Muri.

ASL has a unique price point of Rs. 5 which makes it the dominant player in Rural Areas. The company sells more than 12 Lakh packets of products daily. As of June 30, 2022, its distribution network included 300 nos. of Distributors and 80 Super Distributors. The company has 235 full-time employees as on August 31, 2022.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its need for capital expenditure (Rs. 21.73 cr.) and general corporate purposes, ASL is coming out with a maiden IPO of 4322000 equity shares of Rs. 10 each via book building route. It has fixed a price band of Rs. 68 to Rs. 70 per share and at the upper cap, mulls mobilization of Rs. 30.25 cr. The issue opens for subscription on September 15, 2022, and will close on September 19, 2022. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.32% of the post-issue paid-up capital of the company. 

The issue is solely lead managed by Corporate Capitalventures Pvt. Ltd. and Skyline Financial Services Pvt. Ltd. is the registrar to the issue. SS Corporate Securities Ltd. is the market maker for this company. 

Having issued initial equity capital at par, the company issued further equity capital at a fixed price of Rs. 45 per share between May 2022 and July 2022. The average cost of acquisition of shares by the promoters is Rs. 9.91 and Rs. 10 per share. 

Post-IPO, ASL's current paid-up equity capital of Rs. 12.10 cr. will stand enhanced to Rs. 16.42 cr. At the upper price band of the IPO, the company is looking for a market cap of Rs. 114.95 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, ASL has given its financial data in two sets i.e. as a partnership LLP till February 11, 2022, and thereafter as a limited company entity. 

As a partnership entity, it has posted turnover/net profits of Rs. 13.75 cr. / Rs. 0.34 cr. (FY20), Rs. 20.30 cr. / Rs. 0.51 cr. (FAY21) and for the period ended till February 11, 2022, of FY23 it has posted a turnover of Rs. 49.22 cr. with a net profit of Rs. 1.86 cr. 

As a limited company, it has posted a turnover of Rs. 11.83 cr. with a net profit of Rs. 0.55 cr. for the period from February 12, 2022, till March 31, 2022. For the Q1 of FY23, it earned a net profit of Rs. 1.31 cr. on a turnover of Rs. 29.06 cr. Thus it has marked super growth in its top and bottom lines for FY22 and for FY23 Q1 (on an overall basis). 

For the last three fiscals, ASL has posted an average EPS of Rs. 2.05 and an average RoNW of 30.23%. The issue is priced at a P/BV of 6.49 based on its NAV of Rs. 10.79 as of March 31, 2022, and at a P/BV of 2.09 based on its post-IPO NAV of Rs. 33.43 (at the upper cap). 

If we annualize FY23 earnings and attribute it to post IPO fully diluted equity base, then the asking price is at a P/E of around 21.94 whereas on the basis of its last three years' average earnings it's at a P/E of 106.06, and based on FY22 earnings, it is at a P/E of 47.62. Thus the issue is greedily priced based on its financial data as well as considering its recent issue of equity shares at Rs. 45 each in the months of May 22, June 22, and July 22.

COMPARISON WITH LISTED PEERS:
As per the offer documents, the company has shown Prataap Snacks, DFM Foods, and Britannia Ind. as its listed peers. They are currently trading at a P/E of 141.66, 00, and 60.27 (as of September 09, 2022). Though they are not truly comparable on an apple-to-apple basis, this comparison is a bit surprising and raises eyebrows.

DIVIDEND POLICY:
The company has not paid any dividend since incorporation. It will adopt a prudent dividend policy post listing, based on its financial performance and future prospects. 

MERCHANT BANKER'S TRACK RECORD:
This is the 10th mandate from Corporate CapitalVentures in the last six fiscals (including the ongoing one). Out of the last 9 listings, 2 opened at discount and the rest with premiums ranging from 0.87% to 29.50% on the day of listing. The merchant banker has not given (Annexure A)  its track records summary in the offer document.

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