JFL Life NSE SME IPO review (May apply)

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Review By Dilip Davda on August 16, 2022

•    JFLL is engaged in pharma products like injectables, capsules, and tablets. 
•    Due to the pandemic and expansion on hand, it marked a static top line.
•    Added capacities helped it to increase its margins as reflected in FY22 earnings.
•    The issue is fully priced on the basis of its latest financial performance.
•    Considering fancy for pharma counters, investors may consider an investment with a medium to long-term perspective. 

ABOUT COMPANY:
JFL Life Sciences Ltd. (JFLL) is engaged in the business of manufacturing pharmaceutical products. The company is engaged in domestic as well as international business. With a market presence in PAN India, products of JFL are supplied to 10 developed and developing countries throughout the World. To maintain its competitiveness and to further the cause of health care JFL has laid a strong R&D foundation and an FDA-approved state-of-the-art manufacturing facility near Ahmedabad. 

JFLL is a manufacturing company, so its sales strategy is to sell products in bulk to pharmaceutical marketers and traders who in turn provide the channel for sales to customers. The company do not sell it under any brand name and uses the same strategy for both domestic & international market. Its product portfolio includes - Dry powder injections, Tablets & Capsules (B-Lactam) solid oral dosage form, Tablet and capsules (General), and Oral Rehydration Solutions (ORS).

It exports products majorly to African countries, Middle Eastern countries, and CIS countries, mainly through merchant exporters. The Company is registered with the MOH of Kenya, Nigeria, Yemen, Cambodia & Myanmar for the manufacturing of a particular product. A few of its products are also registered with Ukraine, Uzbekistan, and Kazakhstan (CIS countries) through merchants. As of February 28, 2022, it had 36 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for repayment of loans (Rs. 7.50 cr.), working capital (Rs. 6.00 cr.), and general corporate purposes (Rs. 4.27 cr.), JFLL is coming out with a maiden IPO of 2978000 equity shares of Rs. 10 each at a fixed price of Rs. 61 per share to mobilize Rs. 18.17 cr. The issue opens for subscription on August 25, 2022, and will close on August 30, 2022. Minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 27.08% of the post-IPO paid-up capital of the company. JFLL is spending Rs. 0.40 cr. for this IPO process. 

The issue is solely lead managed by GYR Capital Advisors Pvt. Ltd. (erstwhile known as Alpha Numero Services Pvt. Ltd.), KFin Technologies Ltd. is the registrar to the issue, and Econo Broking Pvt. Ltd., is the market maker for this IPO. 

Having issued initial equity at par, the company issued further equity shares in the price range of Rs. 90 - Rs. 130 between March 2013 and January 2021. It has also issued bonus shares in the ratio of 12 for 1 in January 2022. The average cost of acquisition of shares by the promoters is Rs. 9.00 and Rs. 9.31 per share. 

Post-IPO, JFLL's current paid-up equity capital of Rs. 8.02 cr. will stand enhanced to Rs. 11.00 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 67.09 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, for the last three fiscals, JFLL has posted turnover/net profits of Rs. 31.78 cr. / Rs. 0.30 cr. (FY19), Rs. 30.20 cr. / Rs. 0.36 cr. (FY20), Rs. 32.87 cr. / Rs. 0.54 cr. (FY21). For the first 11 months of FY22 ended on February 28, 2022, it earned a net profit of Rs. 2.53 cr. on a turnover of Rs. 25.63 cr. It marked static top lines so far but has shifted its focus to high-margin products. Though it primarily focused on injectable products, it has now added capsules and tablet manufacturing plants. As clarified by its management, the company has created extra production facilities and also completed the registration and approval process, it is now ready to reap the benefits of its expansion. Its turnover includes over 77% of export earnings. 

For the last three fiscals, JFLL has posted an average EPS of Rs. 0.76 and an average RoNW of 7.18%. The issue is priced at a P/BV of 4.46 based on its NAV of Rs. 13.67 as of February 28, 2022, and at a P/BV of 2.30 based on its post-IPO NAV of Rs. 26.48 per share. 

If we attribute FY22 annualized earnings on post IPO fully diluted equity, then the asking price is at a P/E of around 26.52 making it a fully priced issue. 

COMPARISON WITH LISTED PEERS:
As per the offer document, JFLL has shown Zenith Health and Vaishali Pharma as its listed peers. They are currently trading at a P/E of 194.33 and 19.27 (as of August 16, 2022). However, they are not truly comparable on an apple-to-apple basis. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer documents. It will adopt 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 GYR Capital in the last two fiscals (including the ongoing one). Out of the last four listings, all were listed with a premium ranging from 2.45% to 6.15% on the day of listing. Thus it has an average track record.

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