HOAC Foods NSE SME IPO review (May apply)

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Review By Dilip Davda on May 14, 2024

•    The company is in the business of manufacturing of flour, spices etc. and marking it in the confined region of Delhi-NCR.
•    It posted average financial performance so far. It operates in a highly competitive and fragmented segment.
•    The company markets its products under "HARIOM" brand.
•    Based on FY24 annualized super earnings, the issue appears fully priced.
•    Well-informed/cash surplus investors may park moderate funds for the medium term.

ABOUT COMPANY:
HOAC Foods India Ltd. (HFIL) is engaged in the manufacturing of flour (chakki atta), herbs & spices, unpolished pulses, grains, and yellow mustard oil in its product range and markets & sell it in and around Delhi-NCR under the brand name "HARIOM" through its Exclusive Brand Outlets. The company handpicks raw materials from various parts of the country and process products with utmost care without using artificial preservatives or chemicals, thereby creating a product portfolio of organic spices and flour, which carry the freshness and goodness of each ingredient.

HFIL's model has helped penetrate the niche segment of its market and establish a customer base in and around Delhi-NCR. Since inception, its objective has been to produce high-quality natural spices and food products without artificial preservatives or synthetic substances. To achieve this, it has developed a business model in which it manufactures and packages products in quantities that can sustain a customer until the shelf life of the product, reducing waste and providing a diverse range of products with freshness and goodness. 

Presently most of its sales are derived from Delhi-NCR region. HFIL's extensive franchisee network comprised of 4 company-owned outlets and 6 franchisee-owned outlets, totaling 10 Exclusive Brand Outlets which sells and markets only its brand's products. It also relies on D2C platform through its in-house built Mobile Application both on Google Play Store and Apple's App Store and Company website which is available for sale of products. It has implemented a franchisee management system that helps it coordinate with franchise owners, store managers and provides the visibility on inventory levels and franchisee and store sales, enabling it to optimize distribution network and reduce the time between the food product manufactured in its facility to consumer's kitchen which is around within same day to maximum 1 day. As of December 31, 2023, it had 50 employees on its payroll. It also employs contract labour as and when needed.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 1155000 equity shares of Rs. 10 each a fixed price of Rs. 48 per share to mobilize Rs. 5.54 cr. The issue opens for subscription on May 16, 2024, and will close on May 21, 2024. The minimum application to be made is for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 30.05% of the post-IPO paid-up capital of the company. The company is spending Rs. 0.59 cr. for this IPO process, and from the net proceeds of the IPO, it will utilize Rs. 3.50 cr. for working capital, and Rs. 1.45 cr. for general corporate purposes. 

The issue is solely lead managed GYR Capital Advisors Pvt. Ltd., and KFin Technologies Ltd., is the registrar of the issue. Giriraj Stock Broking Pvt. Ltd. is the market maker for the company. 

Having issued initial equity shares at par value, the company issued/converted further equity shares in the price range of Rs. 34 - Rs. 85 between November 2021 and September 2023. It has also issued bonus shares in the ratio of 75 for 10 in October 2023. The average cost of acquisition of shares by the promoters is Rs. 2.63, Rs. 6.34, and Rs. 85 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 2.69 cr. will stand enhanced to Rs. 3.84 cr. Based on the IPO price, the company is looking for a market cap of Rs. 18.75 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 7.46 cr. / Rs. 0.13 cr. (FY21), Rs. 10.94 cr. / Rs. 0.27 cr. (FY22), and Rs. 12.19 cr. / Rs. 0.59 cr. (FY23). For 9M of FY24 ended on December 31, 2023, it earned a net profit of Rs. 0.75cr. on a total income of Rs. 11.55 cr. The company posted steady growth in its top and bottom lines for the reported periods. 

For the last three fiscals, it has reported an average EPS of Rs. 2.62, and an average RoNW of 34.67%. The issue is priced at a P/BV of 4.09 based on its NAV of Rs. 11.74 as of December 31, 2023, and at a P/BV of 2.12 based on its post-IPO NAV of Rs. 22.64 per share.

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 18.53, and based on FY23 earnings, it is at a P/E of 31.37, thus the issue appears fully priced. 

For the reported periods, the company has posted PAT margins of 1.73% (FY21), 2.51% (FY22), 4.86% (FY23), 6.49% (9M-FY24), and RoCE margins of 20.16%, 21.97%, 30.12%, 23.43% respectively 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 Contil India and Jetmall Spices, as their listed peers. They are trading at a P/E of xx and xx (as of May 14, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 25th mandate from GYR Capital in the last four fiscals (including the ongoing one), out of the last 10 listings, all listed at a premiums ranging from 36.36% to 366.67% on the date of listing.

Hariom Atta & Spices IPO FAQs