Grill Splendour NSE SME IPO review (Avoid)

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Review By Dilip Davda on April 9, 2024

•    The company is engaged in the chain of foodies in and around Mumbai.
•    Currently it operates out of 17 retail stores and a centralized production facility.
•    It posted an average financial performance with a boosted profit from FY23 onwards.
•    Higher earnings appear to be a fabricated data to pave the way for fancy valuations.
•    Based on annualized super earnings for FY24, the issue appears aggressively priced.
•    There is no harm in skipping this pricey bet. 

ABOUT COMPANY:
Grill Splendour Services Ltd. (GSSL) is a chain of gourmet Bakery and Patisserie spread across Mumbai through 17 retail stores, a centralized production facility and multiple corporate clients. Out of these 17 retail stores, 5 stores are running under the franchisee model (franchisee owned, and company operated) and rest 12 stores are owned by it. 

It offers fresh food products from traditional to 'made to order' as required by the Customers. Grill Splendour Services Private Ltd. was incorporated in November 2019 as a hospitality company to acquire the bakery and confectionary business along with brand Birdy's Bakery and Patisserie from WAH Restaurants Private Limited. The acquisition was done via a Business Transfer and Intellectual Property Assignment Agreement dated December 27, 2019 (Acquisition Agreement). After that the company proceeded to invest in the business and grow the brand and spread presence.

The brand Birdy's was originally set up as "Birdy's by Taj". Over a period, it was sold to WAH Restaurants Private Limited and from them the same was acquired by GSSL vide above referred Acquisition Agreement. The primary focus of the Company was to bring back the quality and sheen of the brand. It is engaged in the sale of broad categories of products: i.e. Cakes & Pastries, Food Sale, Beverages, and Desert Sales.

The Company after acquisition of Birdy's brand has renovated more than half the shops. These shops now boast of seating, music ambience, table service, free library and freshly made food and beverages. These cafes attract a new category of customers called dine- in which was absent earlier.

The company that was primarily in B2C segment has entered in B2B segment from FY23. As of February 29, 2024, it had 77 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 1372800 equity shares of Rs. 10 each at a fixed price of Rs. 120 per share to mobilize Rs. 16.47 cr. The issue opens for subscription on April 15, 2024, and will close on April 18, 2024. The minimum application to be made is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.34% of the post-IPO paid-up capital of the company. The company is spending Rs. 0.37 cr. for this IPO process and from the net proceeds of the IPO, it will utilize Rs. 1.00 cr. for working capital, Rs. 11.15 cr. for repayment/prepayment of certain borrowings, and Rs. 3.95 cr. for general corporate purposes. The company could have opted for a market lot of 1000 shares as per SEBI's price-band formula for SME IPOs. 

The issue is solely lead managed by Inventure Merchant Banker Services Pvt.  Ltd., and Bigshare Services Pvt. Ltd. is the registrar of the issue. Rikhav Securities Ltd. is the market maker for the company. While Inventure has underwritten this IPO to the tune of 94.93%, Rikhav has underwritten for 5.07%.

The company has issued entire equity capital at par so far and has also issued bonus shares in the ratio of 150 for 1 in May 2023. The average cost of acquisition of shares by the promoters is Rs. 4.50 and Rs. 10.00 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 3.84 cr. will stand enhanced to Rs. 5.21 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 62.50 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total revenue/net profit/ -(loss) of Rs. 8.25 cr. / Rs. - (0.04) cr. (FY21), Rs. 11.52 cr. / Rs. 0.04 cr. (FY22), and Rs. 15.32 cr. / Rs. 1.99 cr. (FY23). For 8M of FY24 ended on November 30, 2023, it earned a net profit of Rs. 0.62 cr. on a total revenue of Rs. 8.86 cr. The sudden boost in its bottom lines in pre-IPO year raise concerns over its sustainability going forward. 

For the last three fiscals, it has reported an average EPS of Rs. 6.63, and an average RONW of 117.82%. The issue is priced at a P/BV of 9.02 based on its NAV of Rs. 13.30 as of March 31, 2023, and at a P/BV of 2.81 based on its post-IPO NAV of Rs. 42.65 per share. The offer document is missing its NAV as of November 30, 2023.

If we attribute annualized FY24 earnings to its post-IPO fully diluted paid-p capital, then the asking price is at a P/E of 67.42. Thus the IPO appears aggressively priced. 

For the reported periods, the company has posted PAT margins of - (0.44) % (FY21), 0.30% (FY22), 13.00% (FY23), 6.96% (8M-FY24). The KPI data is missing RoCE margins info in the offer document.

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 Westlife Food, Sapphire Foods, and Jubilant Food as their listed peers. They are trading at a P/E of 145.0, 52.2, and 135.0 (as of April 09, 2024). However, they are not comparable on an apple-to-apple basis. This compare is appearing as an eyewash. 

MERCHANT BANKER'S TRACK RECORD:
This is the 9th mandate from Inventure Merchant in the last four fiscals including the ongoing one. Out of the last 8 listings, 3 opened at a discount, 2 at par and the rest with premiums ranging from 0.05% to 57.14% on the listing day. 
 

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