Hemant Surgical BSE SME IPO review (Apply)

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Review By Dilip Davda on May 20, 2023

•    HSIL is in the business of medical equipment/disposables manufacturing/marketing.
•    It has posted growth in its top and bottom lines in recent years.
•    Based on FY23 earnings, the issue is reasonably priced. 
•    Investors may consider parking funds for the medium to long term. 

ABOUT COMPANY:
Hemant Surgical Industries Ltd. (HSIL) is in the business of manufacturing/importing/assembling and marketing a comprehensive portfolio of medical equipment and disposables. Its product offerings cover a wide spectrum of equipment and disposables required for (i) Renal Care, (ii) cardiovascular disease (iii) respiratory disease, (iv) Critical Care and Radiology and (v) Surgical disposables. 

Its wide range of products includes some of the indigenously manufactured products along with some other products that are imported from countries like Japan, China, France and Australia and are further processed in HSIL's assembly units. In addition, the company is also providing services for the maintenance and running of dialysis centres.

HSIL has a diversified product portfolio of medical equipment and disposables catering to renal care solutions, cardiovascular disease, respiratory disease, Critical Care and Radiology and surgical disposables. It deals in a wide range of products, which enables it to cater to a wider customer base across India and also expand its reach in international locations like the Philippines, Bangladesh, Kenya, Bhutan, Burundi, Cameroon, Congo, Nepal, Nigeria, Ivory Coast, France, Seychelles, etc. 

The collaboration, agreements or authorizations awarded to the company for equipment or disposables has endowed it with greater exposure and opportunity to benefit from the large consumer market in India. HSIL provides advanced medical equipment with the latest technology. As of December 31, 2022, it had 172 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 2760000 equity shares of Rs. 10 each via a book-building route to mobilize Rs. 24.84 cr. at the upper price band. The company has announced a price band of Rs. 85 - Rs. 90 per share. The issue opens for subscription on May 24, 2023, and will close on May 26, 2023. The minimum application to be made is for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.44% of the post-IPO paid-up equity capital of the company. After reserving 144000 equity shares for the market maker, HSIL has allocated 1305600 shares for QIBs, 393600 shares for HNIs and 916800 shares for Retail investors. From the net proceeds of the issue funds, it will utilize Rs. 7.51 cr. as Capex for installing additional plant and machinery, Rs. 10.00 cr. for working capital and the rest for general corporate purposes. 

Hem Securities Ltd. is the sole lead manager and Bigshare Services Pvt. Ltd. is the registrar of the issues. Hem Group's Hem Finlease Pvt. Ltd. is the market maker for the company. 

The company has issued/converted initial equity share capital at par value so far and has also issued bonus shares in the ratio of 3 for 5 in December 2022. The average cost of acquisition of shares by the promoters is Rs. 5.90 and Rs. 6.21 per share. 

Post-IPO, HSIL's current paid-up equity capital of Rs. 7.68 cr. will stand enhanced to Rs. 10.44 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 93.96 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, HSIL has posted a turnover/net profit of Rs. 60.65 cr. / Rs. 1.15 cr. (FY21), Rs. 105.77 cr. / Rs. 4.61 cr. (FY22), and Rs. 111.50 cr. / Rs. 7.65 cr. (FY23). Thus it marked steady growth in its top and bottom lines for the reported periods. Its PAT margins have improved from 1.92% (FY21) to 7.01% (FY23).

For the last three fiscals, HSIL has reported an average EPS of Rs. 8.50 and an average RoNW of 30.14%. The issue is priced at a P/BV of 2.84 based on its NAV of Rs. 31.70 as of March 31, 2023, and at a P/BV of 1.94 based on its post-IPO NAV of Rs. 46.40 per share (at the upper cap). 

If we attribute FY23 earnings to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 12.28. Thus the issue appears reasonably priced. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. 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 Poly Medicure as their listed peer. It is currently trading at a P/E of 52.01 (as of May 19, 2023). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 25th mandate from Hem Securities in the last four fiscals (including the ongoing one). Out of the last 10 listings, all got listed at premiums ranging from 1.82% to 166.67% on the listing date.

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