Archit Nuwood BSE SME IPO review (Apply)

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Review By Dilip Davda on August 27, 2024

•    The company is engaged in the manufacturing and marketing of broad range of MDF and HDF boards and Prelaminated sheets.
•    After a setback in FY22 following the pandemic, it marked robust growth in its top and bottom lines following boom in realty sector. 
•    The company is expanding its capacity to meet the rising demand for its products. 
•    Based on FY24 earnings, the issue appears reasonably priced.
•    Investors may park funds for the medium to long term.

ABOUT COMPANY:
Archit Nuwood Industries Ltd. (ANIL) is engaged in manufacturing of broad range of MDF & HDF boards, and Prelaminated Sheets of different varieties. The Factory is located at Tohana and equipped with MDF & HDF Plant along with Short Cycle Presses with an installed capacity of 3600 CBM per day (7200 Boards of size 16 ft. 4ft. in a day). The Prelaminated Range includes variety of textures like Solid, Wood Grain Shades, and Fabric & Stone décors, finely crafted textured caul plates etc.

The company produces Medium Density Fiberboard (MDF) with a capacity of 360 cubic meters or 300 tonnes per day, along with offering pre-lamination services. To strengthen its position in the market and meet growing demand, it has focused on expanding manufacturing capacity for Medium Density Fiberboard (MDF). This expansion will enable it to cater to a wider customer base and capitalize on the increasing market opportunities. Additionally, it is actively developing new products to diversify portfolio and meet the evolving needs of customers. By expanding capacity and product range, it aims to enhance competitiveness, drive growth, and maximize value for stakeholders.

As organized real estate development started growing in India, the company realized that it was imperative to tap large real estate players. Since the buyers in organized real estate market are more sophisticated with better understanding of the market and pricing, a direct marketing approach to them was adopted. ANIL approaches large corporate houses to market its products and ensure secondary sales through dealers and distributors. As of the date of filing this offer document, it had 149 employees on its payroll. It also employs contract labourers as and when required.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 6240000 equity shares of Rs. 10 each to mobilize Rs. 168.48 cr. at the upper cap. It has announced a price band of Rs. 257 - Rs. 270 per share. The issue opens for subscription on August 30, 2024, and will close on September 03, 2024. The minimum application to be made is for 400 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.38% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 133.58 cr. for investment in its wholly owned subsidiary company Archit Panels Pvt. Ltd., through equity infusion, and the rest for general corporate purposes. 

The issue is solely lead managed by Share India Capital Services Pvt. Ltd., and Maashitla Securities Pvt.  Ltd. is the registrar to the issue. Share India group's Share India Securities Ltd. is the market maker for the company. 

Having issued initial equity shares at par value, the company issued further equity shares at a price of Rs. 180.00 in December 2023. The company has also issued bonus shares in the ratio of 2 for 5 in November 2023. The average cost of acquisition of shares by the promoters is Rs. 7.14 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 17.42 cr. will stand enhanced to Rs. 23.66 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 638.70 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a standalone basis) posted a total income/net profit of Rs. 134.32 cr. / Rs. 4.43 cr. (FY22), Rs. 153.69 cr. / Rs. 21.28 cr. (FY23), Rs. 185.40 cr. / Rs. 36.93 cr. (FY24).

For FY24, on a consolidated basis, the company earned a net profit of Rs. 42.87 cr. on a total income of Rs. 198.47 cr. 

For the last fiscals, it has reported an EPS of Rs. 25.96, and an average RoNW of 61.62%. The issue is priced at a P/BV of 5.09 based on its NAV of Rs. 53.00 as of March 31, 2024, and at a P/BV of 2.45 based on its post-IPO NAV of Rs. 110.24 per share (at the upper cap). 

If we attribute FY24 earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 17.30.  Thus the issue relatively appears reasonably priced. 

For the reported periods, the company has posted PAT margins of 3.30% (FY22), 13.97% (FY23), 20.07% (FY24), and RoCE margins of 18.93%, 69.67%, 40.38% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends since incorporation. 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 Rushil Décor and Century Plyboards as their listed peers. They are trading at a P/E of 23.4 and 63.9 (as of August 26, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 13th mandate from Share India Capital in the last two fiscals (including the ongoing one), out of the last 10 listings, 1 opened at par and the rest opened with premiums ranging from 5.33% to 131.18% on the date of listing. 

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