Avi Ansh NSE SME IPO review (Avoid)

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Review By Dilip Davda on September 17, 2024

•    The company is engaged in the manufacturing and marketing of cotton yarn.
•    The company marked growth in its top lines for the reported periods, but its bottom line posted inconsistency.
•    Based on FY24 earnings, the issue appears aggressively priced.
•    There is no harm in skipping this "High Risk/Low Return" bet.

PREFACE:
Aho Ashi.e. 4192000 or 4194000 shares). Hope the concern authorities will clarify on this aspect. Due to this anomaly, my review may wrong to that extent. The offer document has many anomalies and missing important data.

N.B.: As the company/merchant banker modified the issue size to 4192000 equity shares, the review stands rectified to that extent. The final assumption stands unchanged for the issue as AVOID.

ABOUT COMPANY:
Avi Ansh Textiles Ltd. (AATL) has been operating in the yarn sector since 2005. By 2012, it had established a presence as a manufacturer and exporter of 100% cotton yarn, including combed and carded cotton yarn in various counts. Its production capacity at that time was approximately 4,500MT of cotton yarn per year, with 26,314 spindles. AATL's unwavering commitment to quality and adherence to international standards has garnered trust from both domestic and international buyers. 

Branded as Pooja Gold, its yarn reflects meticulous craftsmanship, offering unparalleled softness, strength, and versatility. Additionally, it has vertically integrated into the knitting division, producing superior quality fabrics in dyed and greige variants, delivered within promised timelines. Equipped with high-speed automatic circular knitting machines, its fabric division can knit 1800 MT per annum of various fabric types. The company is a Punjab based manufacturing house engaged in the business of manufacturing of:  Yarns - 1. 100 % Carded cotton, 2. 100% Combed cotton, 3. Short, medium, long slub yarn produced with specific patterns, Fabric- 1. Single Jersey, Rib Knit, Interlock Fabric, Terry, 2. Diagonal Terry, waffle, Thermal, Fleece, 3. Pique, Rice Knit, Dot Knit, Nirmal Knit, Lycra Blended Fabrics, 4. Dry Fit, Honeycomb Mat, Spun Matte

Avi Ansh Group is a textile company that operates in the domestic as well as global market. The company manufactures and supplies a range of Yarns and Fabrics to meet customer needs. It utilizes technology and human resources to achieve its goals. The company has installed heavy machines of German and European technology in their manufacturing units as well as adequate labour is employed to maintain 24-hour non-stop production at the unit. The company is focused on continuous updating of machines as per the latest technology and adopts a sustainable business strategy for its organization. As of the date of this offer document, it had 281 employees on its payroll including few contract labourers.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 4192000 equity shares of Rs. 10 each at a fixed price of Rs. 62 per share to mobilize Rs. 25.99 cr. The issue opens for subscription on September 20, 2024, and will close on September 24, 2024. 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 29.99% of the post-IPO paid-up capital of the company. The company is spending Rs. 1.37 cr. for this IPO process and from the net proceeds, the company will utilize Rs. 3.95 cr. for repayment of term loan, Rs. 20.12 cr. for working capital, and Rs. 0.55 cr. for general corporate purposes.

The issue is solely lead managed by 3Dimension Capital Services Ltd., Skyline Financial Services Pvt. Ltd. Is the registrar to the issue, while Nikunj Stock Brokers Ltd., Is the market maker for the company. The issue is underwritten to the tune of 15% by 3Dimension Capital and up to 85% by Sixth Sense Securities Pvt. Ltd.

Having issued initial equity shares at par, the company issued/based on FV of Rs. 10) per share, between July 2014 and March 2018. The average cost of acquisition of shares by the promoters is Rs. 6.09, Rs. 6.42, Rs. 7.86, Rs. 8.25, Rs. 9.17, Rs. 12.20, Rs. 12.90, Rs. 13.40, Rs. 13.51, and Rs. 13.96 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 9.79 cr. will stand enhanced to Rs. 13.98 cr. Based on the upper cap of IPO price band, the company is looking for a market cap of Rs. 86.66 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last four fiscals, the company has posted a total income/net profit of Rs. 72.64 cr. / Rs. 0.68 cr. (FY21), Rs.  120.17 cr. / Rs. 1.56 cr.  (FY22), Rs. 121.50 cr. / Rs. 0.29 cr. (FY23), and Rs. 142.15 cr. / Rs. 3.31 cr. (FY24).  While the company reported some growth in its top line, its bottom line marked inconsistency with roller-coaster ride.

For the last three fiscals, it has reported an average EPS of Rs. 2.05, but missing average RoNW data. The issue is priced at a P/BV of 4.32 based on its NAV of Rs. 16.22 as of March 31, 2024, but missing post-IPO NAV data.

If we attribute FY24 super earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 29.54. Based on FY23 earnings, the P/E stands at 333.33. Thus the issue relatively appears aggressively priced. Super performance in a pre-IPO year raises eyebrows and concern over its sustainability, as the company is operating in a highly competitive and fragmented segment. 

The company reported PAT margins of 0.94% (FY21), 1.30% (FY22), 0.24% (FY23), 2.35% (FY24), and RoCE margins of 12.54%, 15.92%, 10.24%, 15.88% for the referred periods, respectively.

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.

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Jindal Worldwide, Shanti Spintex, Manomay Tex, and United Polyfab, as their listed peers. They are trading at a P/E of 87.8, 9.89, 27.8, and 32.7 (as of September 17, 2024). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 1st mandate from 3Dimension Capital in the ongoing fiscal. It has no past track records.

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