Dollex Agro NSE SME IPO review (May apply)

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Review By Dilip Davda on December 13, 2022

•    DAL is in the business of Sugar manufacturing and trading. 
•    It has captive power generation capabilities. 
•    Based on its recent financial data, the issue appears fully priced. 
•    Well-informed, cash surplus investors may consider parking funds for long-term rewards. 

ABOUT COMPANY:
Dollex Agrotech Ltd. (DAL) is engaged in the business of manufacturing & trading sugar with captive power cogeneration capabilities. It has received in-principle approval from the Department of Food & public distribution from the Government of India for establishing distilleries of 200 KLPD capacity. In addition to sugar, it also produces and sells its byproducts such as molasses, press mud, and bagasse. The bagasse is used to generate power. Further, the company is into captive power generation with a capacity of 3 MW for its own use to run our plant at Datia.

DAL is planning to step into the business of Ethanol production under the EBP Program by the Ministry of Petroleum and Natural Gas. Ethanol consumption is expected to rise in the future when the commercial blending of ethanol with petrol (for producing gasohol) takes off. In the long term, however, the supply is also expected to increase as more sugar manufacturers are expected to set up primary distilling facilities and new sugar mills are expected to come up in the form of integrated plants with cogeneration. The Company manufactures & trades sugar in wholesale & sells it in a package of 50kgs to anyone who wants to buy it, therefore it has no distributor as of date & sells sugar to clients directly without involving any distributor. As of the date of filing this offer document, DAL has 48 employees on its payroll. 

As clarified by the management, Dollex Industries got reverse merged with Parvati Sweetners and later on, Dollex Ind. sold its entire stake to the new entity and thus has no connection with it in any manner now. (Refer P90 of the offer document). 

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its need for working capital (Rs. 11.30 cr.), and general corporate purposes (Rs. 4.00 cr.), DAL is coming out with a maiden combo IPO of fresh equity and Offer for Sale (OFS). The company is issuing 4968000 fresh equity shares and 2000000 by way of OFS. DAL is issuing shares of Rs. 10 each at a fixed price of Rs. 35 per share and will mobilize Rs. 24.39 cr. including Rs. 17.39 cr. by way of fresh equity and Rs. 7.00 cr. as OFS. The issue opens for subscription on December 15, 2022, and will close on December 20, 2022. The minimum application to be made is for 4000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 27.91% of the post-issue paid-up equity capital of the company. DAL is spending Rs. 2.09 cr. for this IPO process.

The issue is solely lead managed by Expert Global Consultants Pvt. Ltd. and Skyline Financial Services Pvt. Ltd. is the registrar of the issue. Nikunj Stock Broker Ltd. is the market maker for the company. 

Post-IPO, DAL's current paid-up equity capital of Rs. 20.00 cr. will stand enhanced to Rs. 24.97 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 87.39 cr. 

DAL has issued/converted entire equity shares so far at par value. The average cost of acquisition of shares by the promoters is Rs. 10.00 per share. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, DAL has posted a turnover/net profit of Rs.  25.90 cr. / Rs. 0.58 cr. (FY20), Rs. 77.48 cr. / Rs. 1.67 cr. (FY21), and Rs. 79.63 cr. / Rs. 3.27 cr. (FY22). For the Q1 of FY23 ended on June 30, 2022, it earned a net profit of Rs. 1.51 cr. on a turnover of Rs. 8.41 cr. 

For the last three fiscals, it has reported an average EPS of Rs. 1.19 and an average RoNW of 9.41%. The issue is priced at a P/BV of 2.5 based on its NAV of Rs. 14.00 as of June 30, 2022, and at a P/BV of 1.93 based on its post-IPO NAV of Rs. 18.18 per share. 

If we annualize FY23 earnings and attribute it to the post-issue paid-up equity capital of the company, then the asking price is at a P/E of around 14.46. Thus the issue appears fully priced. 

According to the management, with a supportive policy from the Government of India for the Sugar Industry and encouragement for ethanol policy, the prospects for DAL have improved and the company is poised to ripe benefits with its plans afoot. 

DIVIDEND POLICY:
The company has not declared any dividends in any financial year so far. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, DAL has shown Shree Renuka sugar, Bajaj Hindustan, Vishwaraj Sugar, and Parvati Sweetners as their listed peers. They are currently trading at a P/E of 00, 00, 6.22, and 00 (as of December 13, 2022). However, they are not truly comparable on an apple-to-apple basis. (Note: P/E as per BSE Website as of the same date is -514.53, -7.19, 6.22, and -41.60 respectively).

MERCHANT BANKER'S TRACK RECORD:
This is the 2nd mandate from Expert Global in the ongoing fiscal. The only listing that took place so far opened with a premium of 15.93 % of the date of listing.

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