Khyati Global BSE SME IPO review (Avoid)

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Review By Dilip Davda on October 1, 2024

•    The company is re-packer and exporter of variety of food and FMCG products along with household, festive handicrafts and pharma products.
•    The company marked steady growth in its top and bottom lines for the reported periods.
•    It operates on a third-party supply model for most of its business.
•    Based on FY25 annualized earnings, the issue appears fully priced. 
•    Higher debt/EBITDA ratio of 11+ raise concern.
•    There is no harm in skipping this "High Risk/Low Return" offer.

ABOUT COMPANY:
Khyati Global Ventures Ltd. (KGVL) is an Exporter and Re-packager of variety of FMCG products which include sub-categories of Food stuff, Non-food FMCG products, Household Products, Festive handicraft items and it also deals in the Pharmaceutical products. Its major customers are wholesalers and super market importers who runs a chain of supermarkets located in foreign countries. The Company deals in basic items used by end consumers in day-to-day life.

KGVL's business approach is to sell quality goods at competitive prices. The majority of products dealt by it are everyday products forming part of basic rather than discretionary spending. The Company purchases products from manufacturer directly while rest is purchased from vendors dealing in the product. While the local products such as flour, spices, grains, pulses of various types, etc are procured in bulk packaging and then are re packaged in customised pack.

Repackaging work is mostly done by manufactures/ vendors wherein the company sends the packaging materials and labels to be used for re-packaged products while few repackaging is done at its warehouse. The Company even provides private label facility on the products as required by customers. KGVL is asset-light in respect of plant, property and equipment which enable it to achieve a high return on capital employed, with a substantial portion of its sales being generated through warehouse. It does not believe in opening stores rather operating through a warehouse and being able to export to more than 40 countries currently. By using economies of scale, it is able to optimize several costs such as rental, administration, maintenance and employee costs, thereby leading to improved profitability. The Company is supported by IT and operational management systems specific to its business needs. These systems streamline many of functions including procurement, sales, supply chain and inventory control processes and daily produce updated information to support business. As of June 30, 2024, it had 16 employees on its payroll and additional 20 local labourers.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 1848000 equity shares of Rs. 10 each at a fixed price of Rs. 99 per share to mobilize Rs. 18.30 cr. The issue opens for subscription on October 04, 2024, and will close on October 08, 2024. The issue consists of 1048000 fresh equity shares worth Rs. 10.38 cr. and 800000 shares worth Rs. 7.92 cr.by way of Offer for sale (OFS). The minimum number of shares to be applied is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.48% of the post-IPO paid-up capital of the company. The company is spending Rs. 1.17 cr. for this IPO process, and from the net proceeds of the IPO, the company will utilize Rs. 7.45 cr. for working capital, and Rs. 1.75 cr. for general corporate purposes. The company is spending overall Rs. 2.03 cr. including OFS.

The IPO is solely lead managed by Aryaman Financial Services Ltd., and Bigshare Services Pvt. Ltd. is the registrar to the issue. Aryaman Group's Aryaman Capital Markets Ltd., is the Market Maker for the company. The issue is underwritten 94.94% each by Aryaman Financial Services and 5.06% by Aryaman Capital Markets. 

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 38 - Rs. 91, between March 2017, and May 2024. It has also issued bonus shares in the ratio of 1 for 1 in November 2021 and 3 for 1 in March 2024. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 1.25, Rs. 2.12, Rs. 2.44, and Rs. 3.97 per share. The company did a private placement of 754100 shares in the month of May 2024 at a fixed price of Rs. 65 per share, and now asking for a price of Rs. 99 per share.

Post-IPO, company's current paid-up equity capital of Rs. 5.93 cr. will stand enhanced to Rs. 6.98 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 69.08 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 93.63 cr. / Rs. 1.50 cr. (FY22), Rs. 96.17 cr. / Rs. 2.06 cr. (FY23), and Rs. 104.64 cr. / Rs. 2.53 cr. (FY24). For Q1 of FY25 ended on June 30, 2024, it earned a net profit of Rs. 0.95 cr. on a total income of Rs. 27.17 cr. Thus the company has reported steady growth in its top and bottom lines for the reported periods. 

For the last three fiscals, the company has reported an average EPS of Rs. 4.26 and an average RoNW of 21.41%. The issue is priced at a P/BV of 3.31 based on its NAV of Rs. 29.90 as of June 30, 2024, and at a P/BV of 2.46 based on its post-IPO NAV of Rs. 40.28 per share. Its debt/EBITDA ratio of 11.19 as of June 30, 2024 raised concern. 

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 18.23, and based on FY24 earnings, the P/E stands at 27.27. The issue relatively appears fully priced.

For the reported periods, the company has posted PAT margins of 1.63% (FY22), 2.19 % (FY23), 2.45% (FY24), 3.53% (Q1-FY25), and RoCE margins of 16.22%, 15.18%, 16.40%, 17.73%, respectively for the referred periods. 

DIVIDEND POLICY:
The company has not paid 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. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has no listed peers to compare with.

MERCHANT BANKER'S TRACK RECORD:
This is the 15th mandate from Aryaman Financial in the last three fiscals (including the ongoing one).  From the 10 listings so far, 1 opened at discount, and the rest with premiums ranging from 0.03% and 31.15% on the date of listing.

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