Jetmall Spices BSE SME IPO review (Avoid)

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Review By Dilip Davda on March 27, 2021

•    JSML is in the business of trading of spices, masalas, dry fruits and other food items.
•    It has shown declining trends for the last three fiscals for top and bottom lines.
•    Offer documents are unpalatable as it misses info on many aspects.
•    There is no harm in staying away from this issue.

ABOUT COMPANY:
Jetmall Spices and Masala Ltd. (JSML) is engaged in the business of trading and marketing of spices and dry fruits. It introduces its own brand 'Jetmall' in the year 2012. After re-structuring into a corporate entity, it scaled up its operations as a B2B trader in spices, masalas, dry fruits, ready to eat foods, food grains, food ingredients, processed foods, consumable provisions etc., and also started retailing.

As of the date of filing of the prospectus, it has just 5 employees. It does not own any property. It operates from a leased office and godown owned by the promoter.

The company has given unpalatable data in the offer documents.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans for setting up of 10 new Retail outlets (Rs. 1.65 cr.), working capital (Rs. 2.00 cr.) and general corpus fund needs (Rs. 0.85 cr.), JSML is coming out with a maiden IPO of 2490000 equity shares of Rs. 10 each at a fixed price of Rs. 20 per share to mobilize Rs. 4.98 cr. The issue opens for subscription on March 31, 2021, and will close on April 07, 2021. Minimum application is to be made for 6000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 41.55% of the post issue paid-up capital of the company. The company will be spending Rs. 0.48 cr., for this IPO process.

The issue is solely lead managed by Mark Corporate Advisors Pvt. Ltd., and Cameo Corporate Services Ltd. is the registrar to the issue.  Harjivandas Nemidas Securities Pvt. Ltd. is the market maker for this company.

The company has issued/converted the entire equity so far at par value. The average cost of acquisition of shares by the promoters is Rs. 8.73 per share.

Post issue, JSML's current paid-up equity capital of Rs. 3.50 cr., will stand enhanced to Rs. 5.99 cr. Based on the issue price, the company is looking for a market cap of Rs. 11.99 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, JSML has posted turnover/net profit of Rs. 50.33 cr. / Rs. 0.26 cr. (FY18), Rs. 43.45 cr. / Rs. 0.18 cr. (FY19), Rs. 39.16 cr. / Rs. 0.15 cr. (FY20).  For the first half of FY21 ended on September 30, 2020, it has earned a net profit of Rs. 0.65 cr., on a turnover of Rs. 9.26 cr. The sudden boost in the bottom line on the lower top line for the first half raises eyebrows and doubt for window dressing in the IPO year performance.

For the last three fiscals, the company has reported an average EPS of Rs. 0.50 and an average RoNW of 2.62%. The issue is priced at a P/BV of 1.39 based on its NAV of Rs. 14.39 as of March 31, 2020. The offer documents are silent on its financial (as of September 30, 2020) as well as post issue NAV data in the 'Basis for Issue Price' section (page 74 of the offer document).  

Based on the last three fiscals average the issue is priced at a P/E of 40. If we annualize the latest superb earnings (which is unlikely to be sustained going forward based on its last three fiscals track records that have shown declining trends in the top and bottom lines) and attribute it to fully diluted equity post issue then the asking price is at a P/E of 9.20 (sustainability of such performance is doubtful).

COMPARISION WITH LISTED PEERS:
As per offer documents, JSML has declared that it has no listed peers to compare with.

DIVIDEND POLICY:
The company has not any dividend so far. It will follow a prudent dividend policy post listing based on its financial performance and future prospects.

MERCHANT BANKER'S TRACK RECORDS:
This is the 6th mandate from its stable in the last four fiscals (including ongoing one). Out of the last 5 listings, 1 opened at discount, 1 at par and the rest with premiums ranging from 0.05% to 12.78% on the day of listings. (Year wise mandate data is missing from the details under lead manager track record on page 162/163 of the offer documents)

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