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Review By Dilip Davda on June 20, 2023
• ESFL is in specialized plastic products manufacturing and marketing.
• Its client list includes many big brands in global markets.
• The sudden boost in its bottom line for FY23 raises eyebrows.
• As it is operating in a fragmented segment, the sustainability of margins is a major concern.
• Well-informed investors may consider investment; others can stay away.
ABOUT COMPANY:
Essen Speciality Films Ltd. (ESFL) is a manufacturer and exporter of specialized plastic products in the home improvement and home furnishing industry, to renowned multinational modern trade retailers, such as IKEA, Walmart, Kmart, Bed Bath & Beyond, Rusta, Runsven, Kohl's, Kroger etc. The Company has been recognized as a 'two-star export house' by the Ministry of Commerce & Industry, Government of India. It has also been the exclusive global supplier of IKEA for certain products, since incorporation.
The Company is part of the Rajoo Group, which is headed by the promoter group company and Group Company, Rajoo Engineers Limited ("REL"). Rajoo Engineers Limited is listed on the BSE Limited since October 24, 1994, and had a total market capitalization of 270.67 Crore as of June 9, 2023.
ESFL's product portfolio can broadly be classified into seven categories, namely, bath area, kitchen & dining, home décor, storage and organization, fitness and lifestyle, outdoor and utility and customized products, which include plastic films, Spa slippers, Baby shower caps, green-house gutter sheet etc. It markets and sells products predominantly under three brands; 'Draperi' for shower curtains, 'Runner' for shelf liners and 'Paperi' for artificial plants and placemats. Owing to the multipurpose nature of its products, its customer base is diversified and spread across various industries, including but not limited to home furnishing, home decor, departmental stores, discount retailers, hypermarkets, hardware and home improvement, office supplies stores, agricultural and medical industry and international importers and wholesale distributors.
Since the company operates in the home improvement and home furnishing plastic product industry, its products in their respective categories are priced at entry-level price points at retailers, which makes them affordable in all market conditions, and therefore assures a positive outlook for ESFL's products even during an economic downturn. It exports its products to over 24 countries. As of March 31, 2023, it had 671 employees on its payroll.
ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden book-building route combo IPO of 6199200 shares of Rs. 10 each (approx. Rs. 66.33 cr.) consisting of 4699200 fresh equity issue (approx. Rs. 50.28 cr. at the upper cap), and an Offer for Sale of 1500000 shares (approx. Rs. 16.05 cr. at the upper cap). The issue opens for subscription on June 23, 2023, and will close on June 27, 2023. ESFL has announced a price band of Rs. 101 - Rs. 107 per share. 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 29.95% of the post-IPO paid-up capital of the company. From the net proceeds of the fresh equity issue, ESFL will utilize Rs. 3.54 cr. for prepayment/repayment of certain borrowings, Rs. 29.00 cr. for working capital and the rest for general corporate purposes.
The company has allocated 310800 shares for Market Maker, 2942400 shares for QIBs, 884400 shares for HNIs and 2061600 shares for Retail investors.
GYR Capital Advisors Pvt. Ltd. is the sole lead manager and Bigshare Services Pvt. Ltd. is the registrar of the issue. SMC Global Securities Ltd. is the market maker for the company.
The company has issued entire equity shares at par. It has also given bonus shares in the ratio of 2 for 1 in October 2006, 2 for 3 in October 2008 and 15 for 1 in September 2021. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NIL, Rs. 0.12, Rs. 0.387, Rs. 0.435, Rs. 0.44, and Rs.0.62 per share.
Post-IPO, ESFL's current paid-up equity capital of Rs. 16.00 cr. will stand enhanced to Rs. 20.70 cr. Based on the upper cap of the IPO pricing, the company is looking for a market cap of Rs. 221.48 cr.
FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, ESFL has (on a consolidated basis) posted a turnover/net profit of Rs. 96.81 cr. / Rs. 9.14 cr. (FY21), Rs. 118.57 cr. / Rs. 5.17 cr. (FY22), and Rs. 120.48 cr. / Rs. 13.37 cr. (FY23). Though its top line marked growth, its bottom line posted inconsistency. In particular, the last two fiscals' top line has remained almost static but boosted bottom line for FY23 raises eyebrows. There appears to be some window dressing in the FY23 performance.
For the last three fiscals, ESFL has (on a consolidated basis) reported an average EPS of Rs. 6.21 and an average RoNW of 12.46%. The issue is priced at a P/BV of 2.00 based on its NAV of Rs. 53.51 as of March 31, 2023. The offer document as well as the IPO ad is missing post-IPO NAV data.
If we attribute FY23 earnings to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 16.56. Thus the issue appears fully priced based on its super earnings for FY23.
DIVIDEND POLICY:
The company paid a dividend of 200% for FY21 and thereafter it skipped. It will adopt a prudent dividend policy post-listing, based on its financial performance and future prospects.
COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Shaily Engg., and Supreme Ind. as their listed peers. They are currently trading at a P/E of 50.20, and 50.33 (as of June 20, 2023). However, they are not truly comparable on an apple-to-apple basis.
MERCHANT BANKER'S TRACK RECORD:
This is the 14th mandate from GYR Capital in the last three fiscals (including the ongoing one). Out of the last 10 listings, all are listed at premiums ranging from 2.45% to 151.10% on the listing date.
Review By Dilip Davda on June 20, 2023
DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. My reviews do not cover GMP market and operators game plans. Readers must consult a qualified financial advisor before making any actual investment decisions, based the on information published here. With entry barriers, SEBI wants only well-informed investors to participate in such offers. With crazy listings in the recent past, SME IPOs drew the attention of investors across the board and lead to seer madness. However, as SME issues have entry barriers and continued low preference from the broking community, any reader taking decisions based on any information published here does so entirely at their own risk. The above information is based on information available as of date coupled with market perceptions. The Author has no plans to invest in this offer.
About Dilip Davda
Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.
Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.
(Dilip Davda -SEBI registered Research Analyst-Mumbai,
Registration no. INH000003127 (Perpetual)
Email id: dilip_davda@rediffmail.com ).
The initial public offer (IPO) of Essen Speciality Films Limited offers an early investment opportunity in Essen Speciality Films Limited. A stock market investor can buy Essen Speciality Films IPO shares by applying in IPO before Essen Speciality Films Limited shares get listed at the stock exchanges. An investor could invest in Essen Speciality Films IPO for short term listing gain or a long term.
Read the Essen Speciality Films IPO recommendations by the leading analyst and leading stock brokers.
Essen Speciality Films IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the Essen Speciality Films IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.
Our recommendation for Essen Speciality Films IPO is to subscribe for long term.
As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to subscribe for long term to the Essen Speciality Films IPO.
The Essen Speciality Films IPO allotment status will be available on or around July 3, 2023. The allotted shares will be credited in demat account by July 5, 2023. Visit Essen Speciality Films IPO allotment status to check.
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