Durlax Top NSE SME IPO review (May apply)

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Review By Dilip Davda on June 15, 2024

•    The company is engaged in the business of manufacturing solid surface materials.
•    It posted steady growth in its top and bottom lines for the reported periods.
•    Based on FY24 earnings, the issue appears greedily priced.
•    Well-informed investors may park moderate funds for the medium term.
 
ABOUT COMPANY:
Durlax Top Surface Ltd. (DTSL) is engaged in the business of manufacturing of solid surface material, which is sold across India, through an extensive distribution network of distributors and direct customers and also exported to various countries such as Dubai, Bahrain, Greece, Nepal. It operates through two brands namely LUXOR® and ASPIRON®, which provide a wide range of solid surfaces. 

DTSL's LUXOR® brand offers Acrylic UV Solid Surfaces, while ASPIRON® offers Modified Solid Surfaces. Situated in Vapi, its manufacturing facility is equipped with German and South Korean technologies and advanced machinery to produce solid surface materials. The company aims to meet the ever-evolving demands of customers and create functional spaces across various sectors. Its solid surfaces find applications in residential, commercial, hospitality, healthcare, exterior, and diverse industries, providing stylish and durable solutions for countertops, vanities, offices, retail spaces, hotels, hospitals, outdoor projects, and more. As of March 31, 2024, it had 120 vendors in India and 5 in neighboring countries. Its domestic revenue share was 95.51% and international revenue share was 4.49% as of March 31, 2024. As of the said date, it had 69 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 6000000 equity shares of Rs. 10 each to mobilize Rs. 40.80 cr. at the upper cap. It has announced a price band of Rs. 65 - Rs. 68 per share. The IPO consists of 4200000 fresh equity shares (worth Rs. 28.56 cr.at the upper cap) and 1800000 equity shares by way of Offer for Sale (OFS - worth Rs. 12.24 cr. at the upper cap). The issue opens for subscription on June 19, 2024, and will close on June 21, 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 36.08% of the post-IPO paid-up capital of the company. The company is spending Rs.  5.00 cr. for the fresh equity issue, and from the net proceeds of the fresh equity issue, it will utilize Rs. 17.50 cr. for wording capital, and Rs. 6.00 cr. for general corporate purposes. 

The issue is solely lead managed by Expert Global Consultants Pvt. Ltd., and Bigshare Services Pvt. Ltd., is the registrar to the issue. Globalworth Securities Ltd. is the market maker for the company. 

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 30 - Rs. 1220 per share between Decembner2015 and April 2023. It has also issued bonus shares in the ratio of 78 for 1 in December 2022. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 7.44, and Rs. 11.18 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 12.43 cr. will stand enhanced to Rs. 16.63 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 113.07 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 47.42 cr. / Rs. 0.48 cr. (FY22), Rs. 66.84 cr. / Rs. 2.09 cr. (FY23), and Rs. 90.84 cr. / Rs. 5.05 cr. (FY24). 

For the last three fiscals, it has reported an average EPS of Rs. 2.68, and an average RoNW of 16.36%. The issue is priced at a P/BV of 3.89 based on its NAV of Rs. 17.58 as of March 31, 2024, and at a P/BV of 2.24 based on its post-IPO NAV of Rs. 30.31 per share (at the upper cap).

If we attribute annualized FY24 earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 22.37. Thus the issue appears greedily priced.

For the reported periods, the company has posted PAT margins of 1.02% (FY22), 3.14% (FY23), 5.56% (FY24), and RoCE margins of 12.35%, 16.13%, 20.20% 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 Kaka Ind., Dhabriya Ply, and Pokarna Ltd., as their listed peers. They are trading at a P/E of 19.0, 26.4, and 22.2 (as of June 14, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 9th mandate from Expert Global in the last three fiscals (including the ongoing one). Out of the last 8 listings, 1 opened at discount, 1 at par and the rest with premiums ranging from 10.47% to 90% on the date of listing. 

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