Excellent Wires NSE SME IPO review (Avoid)

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Review By Dilip Davda on September 8, 2024

•    The company is engaged in the manufacturing and marketing of various types of wires.
•    It marked static top lines for FY23 and FY24.
•    The sudden boost in bottom line for FY24 raised eyebrows and concern over its sustainability.
•    There is some garble in the offer document on pre and post IPO equity data.
•    There is no harm in skipping this pricey bet. 

PREFACE:
Time and again, we are witnessing some garbled data in the offer document of this company which has erred on equity dilution and the post-IPO paid-up equity data (see page 38, 50, and 51. It is really raises concern about approval of such documents by the regulators, who are supposed to be more alert on the information contained in the offer documents. Will NSE clarify on this??? 

ABOUT COMPANY:
Excellent Wires & Packaging Ltd. (EWPL) started its business in April 2012 in the name of Perfect Wire Industries, Partnership Firm, as a manufacturer of various types of wires, such as Spring Steel Wire, High Carbon Wire, Galvanized Wire or GI Wire, Round Stitching Wire, Flat Stitching Wire, Mild Steel (M.S.) & Low Carbon Wire, H.B. & H.H.B. Wire, Annealed Wire, Brass Wire, Copper Wire, Stainless Steel Wire, Spiral Wires, Binding Wires, Bailing Wires and all types & sizes of Wire Ropes made of high carbon or SS Wire With or without PVC Coating for multiple applications under the brand name of Excellent. 

Its other packaging products like PP Strapping Rolls and BOPP Self Adhesive Tapes are purchased from the market and sold to customers on as and when need basis. These packaging products are sold under the brand name of Excellent. It supplies products to various industries viz. Packaging, Engineering, Stationery, Imitation Jewellery, Wires & Cable etc. The Company was incorporated on March 16, 2021 to pursue the business of Perfect Wire Industries in corporate entity and reduced the business in partnership firm over a period of time and is stopped from August 2021 and entire production facility with assets was rented to the Company vide agreement dated June 01, 2021 and it sold all machines to the Company on March 01, 2024 at Rs. 17.75 Lakhs at written down value. As on date above business is completely carried on in Excellent Wires and Packaging Limited. As of July 31, 2024, it had 18 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 1400000 equity shares of Rs. 10 each at a fixed price of Rs. 90 per share to mobilize Rs. 12.60 cr. The issue opens for subscription on September 11, 2024, and will close on September 13, 2024. The minimum application to be made is for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 31.32% of the post-IPO paid-up capital of the company. The company is spending Rs. 1.00 cr. for this IPO process, and from the net proceeds, it will utilize Rs. 5.78 cr. for acquisition of land and construction of building, Rs. 2.00 cr. for acquisition of plant and machineries, Rs. 1.50 cr. for working capital, and Rs. 2.32 cr. for general corporate purposes. 

The issue is solely lead managed by Inventure Merchant Banker Services Pvt. Ltd., and Bigshare Services Pvt. Ltd. is the registrar to the issue. Inventure group's Inventure Growth & Securities Ltd.  is the market maker for the company. The issue is underwritten to the tune of 15.09% by Inventure Merchant Banker and 84.91% by Inventure Growth.

Having issued initial equity shares at par value, the company issued further equity shares at a price of Rs. 90 per share in March 2024 and April 2024. The company has also issued bonus shares in the ratio of 7 for 1 in April 2024. The average cost of acquisition of shares by the promoters is Rs. 10.51, Rs. 10.88, and Rs. 11.25 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 3.07 cr. will stand enhanced to Rs. 4.47 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 40.23 cr.  (Page no. 38 of offer document erred on pre-IPO equity data as it shows 3835400 shares).

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 7.29 cr. / Rs. 0.05 cr. (FY22), Rs. 14.48 cr. / Rs. 0.10 cr. (FY23), Rs. 15.41 cr. / Rs. 0.83 cr. (FY24). The sudden boost in bottom line in a pre-IPO year raises eyebrows and concern over its sustainability going forward. 

For the last three fiscals, it has reported an average EPS of Rs. 1.85, and an average RoNW of 42.57%. The issue is priced at a P/BV of 5.66 based on its NAV of Rs. 15.90 as of March 31, 2024, and at a P/BV of 2.12 based on its post-IPO NAV of Rs. 42.51 per share. 

If we attribute FY24 earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 48.39. The IPO relatively appears exorbitantly priced.

For the reported periods, the company has posted PAT margins of 0.65% (FY22), 0.72% (FY23), 5.39% (FY24), but missing RoCE margins data for the referred periods. 

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 Bedmutha Ind., KEI Ltd., and Rajratan Global as their listed peers. They are trading at a P/E of 25.6, 65.4 and 40.8 (as of September 06, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 12th mandate from Inventure Merchant in the last four fiscals (including the ongoing one), out of the last 11 listings, 3 opened at discount, 1 at par and the rest listed with premiums ranging from 0.46% to 90% on the date of listing.

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