C P S Shapers NSE SME IPO review (May apply)

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Review By Dilip Davda on August 25, 2023

•    CSL is in the business of manufacturing and marketing shapewear for men & women.
•    It has posted growth in its top and bottom lines for the reported periods. 
•    The company follows offline and online distribution channels to market its products.
•    Based on FY23 workings, the issue appears reasonably priced. 
•    The tiny equity capital post-IPO indicates longer gestation for migration to the mainboard.
•    Well-informed investors may park funds for long-term rewards.

ABOUT COMPANY:
CPS Shapers Ltd. (CSL) is engaged in the business of manufacturing Shapewear for Men and Women like V-Shaper, Saree Shapewear, Active Pants, ShapeX Denim, etc. The company is popularly known and identified in the apparel market by the brand name "Dermawear" with its motto "Shape up with Confidence" and "YDIS" ("Your Dress Is Shapewear"). It distributes products both, by e-retail and offline model, and has developed a sustainable business model over the period.

CSL's compression garments fabric is specially designed from a skin-friendly blend of cotton, polyester and spandex which are double and triple-layered for graduated compression effects at the body's critical areas like the abdomen, hips and thighs. It aspires to keep improving services and products, backed with innovative new technologies to provide a great experience to customers.

Its product mix has evolved over the past several years as it has entered into new product categories. CSL's product portfolio currently includes Saree Shapewear, Mini Shaper, Sports Bra, All Mini Corset, Tummy Reducer, All Zenrik, Slimmer, Active Pants, Denim, Mask and other shapewear. 

Its products are sold both, domestically and internationally. The company has a PAN India presence with its distributor network in 28 states and 8 Union territories for the domestic market. It has also started an export division and is supplying products to 5 countries namely Canada, Germany, Australia, the United Kingdom, United States of America. 

The company follows an offline distribution model for the sale of products and has distributors spread across the country who in turn sell its products through various retailers. CSL also follows an online sales model for the supply of products and its products are registered on various online platforms such as Amazon, Ajio, Flipkart, Myntra, Nykaa Fashion, Nykaa Retail, Snapdeal and through its own website, www.dermawear.co.in. As of March 31, 2023, it had 335 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 600000 equity shares of Rs. 10 each at a fixed price of Rs. 185 per share to mobilize Rs. 11.10 cr. The issue opens for subscription on August 29, 2023, and will close on August 31, 2023. The minimum application to be made is for 600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 28.57% of the post-IPO paid-up capital of the company. CSL is spending Rs. 1.28 cr. for this IPO process and from the net proceeds, it will utilize Rs. 1.79 for the purchase of plant and machinery, Rs. 0.10 cr. for the purchase of the commercial vehicle, Rs. 0.21 cr. for the purchase of a solar power system, Rs. 0.18 cr. for updating IT software, Rs. 1.67 cr. for repayment/prepayment of certain borrowings, Rs. 4.05 cr. for working capital, and Rs.1.82 cr. for general corporate purposes. 

Shreni Shares Ltd. is the sole lead manager and Bigshare Services Pvt. Ltd. is the registrar of the issue. Shreni Shares Ltd. is also the market maker for the company. 

After issuing initial equity shares at par value, the company also issued bonus shares in the ratio of 2 for 1 in June 2023. The average cost of acquisition of shares by the promoters is Rs. NIL, and Rs. 5.53 per share. 

Post-IPO, CSL's current paid-up equity capital of Rs. 1.50 cr. will stand enhanced to Rs. 2.10 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 38.85 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, CSL has posted a turnover/net profit of Rs.14.42 cr. / Rs. 0.38 cr. (FY21), Rs. 26.69 cr. / Rs. 1.57 cr. (FY22), and Rs. 36.96 cr. / Rs. 2.46 cr. (FY23). 

For the last three fiscals, CSL has reported an average EPS of Rs. 12.12 and an average RoNW of - (6.29%). The issue is priced at a P/BV of 15.85 based on its NAV of Rs. 11.67 as of March 31, 2023, and at a P/BV of 3.76 based on its post-IPO NAV of Rs. 49.14 per share. 

If we attribute FY23 earnings to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 15.78. Thus the issue appears reasonably priced.

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:
The company has shown Page Ind., Lux Ind., Dollar Ind., KPR Mills and Arvind Ltd. as their listed peers. They are currently trading at a P/E of 83.89, 38.54, 52.77, 46.73, and 18.53 (as of August 25, 2023). However, they are not truly comparable on an apple-to-apple basis. This list of peers is really surprising and is just an eyewash.

MERCHANT BANKER'S TRACK RECORD:
This is the 20th mandate from Shreni Shares in the last three fiscals (including the ongoing one). Out of the last 10 listings, 1 opened at a discount and the rest with premiums ranging from 2.74% to 90% on the date of listing. 

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