Lamosaic NSE SME IPO review (Avoid)

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Review By Dilip Davda on November 15, 2024

•    The company is engaged in trading and manufacturing in products like flush door, decorative laminates, acrylic sheets, plywood etc. 
•    It posted mind boggling top and bottom lines from FY23 onwards.
•    Based on FY25 super earnings, the issue appears fully priced. 
•    It is operating in a highly competitive and fragmented segment.
•    This appears to be a "High Risk/Low Return" bet, as such there is no harm in skipping it. 

ABOUT COMPANY:
Lamosaic India Ltd. (LIL) was started as a partnership firm under the name and style "Swastik Marketing" and was trading in products like flush door, decorative laminates, acrylic sheets, printing paper, plywood etc. under the brand name "Swastik".

In FY24, it got converted into a public limited company and changed its name to Lamosaic India Ltd. While continuing its trading activities, it also started manufacturing on a small scale. For H1-FY25 ended on September 30, 2024, its top line was contributed by 69.79% direct sales, 30.10% authorised dealer/distributor sales, and the rest by franchisee sales. The net margins and RoCE posted by the company is mind boggling and un-believable. 

What is more, the company is operating in a highly competitive and fragmented segment. No listed peers have these kind of earnings even when they have many fold higher top lines. 

While it had just 9 employees as of September 30, 2024, it had 23 contract workers. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 3060000 equity shares of Rs. 10 each at a fixed price of Rs. 200 per share to mobilize Rs. 61.20 cr. The issue opens for subscription on November 21, 2024, and will close on November 26, 2024. The minimum number of shares to be applied is for 600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 29.60% of the post-IPO paid-up capital of the company. The company is spending Rs. 1.74 cr. for this IPO process, and from the net proceeds of the IPO, the company will utilize Rs. 4.46 cr. for repayment of certain borrowings, Rs. 35.00 cr. for working capital, Rs. 6.00 cr. for inorganic growth, and Rs. 14.00 for general corporate purposes. 

The IPO is solely lead managed by Inventure Merchant Banker Services Pvt. Ltd., while KFin Technologies Ltd. is the registrar to the issue. SVCM Securities Pvt. Pvt. Ltd. is the Market Maker for the company. The issue is underwritten to the tune of 15% by Inventure Merchant and 85% by SVCM Securities. 

The company has issued/converted entire equity shares at par value so far.  The average cost of acquisition of shares by the promoters is Rs. 10.00 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 7.28 cr. will stand enhanced to Rs. 10.34 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 206.76 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 10.03 cr. / Rs. 0.51 cr. (FY22), Rs. 31.76 cr. / Rs. 4.07 cr. (FY23), and Rs. 55.66 cr. / Rs. 8.23 cr. (FY24). For H1 of FY25 ended on September 30, 2024, it earned a net profit of Rs. 10.76 cr. on a total income of Rs. 72.87 cr. The sudden boost in its top and bottom lines from FY23 onwards raises eyebrows.

For the last three fiscals, the company has reported an average EPS of Rs. 7.64 and an average RoNW of 41.71%. The issue is priced at a P/BV of 5.59 based on its NAV of Rs. 35.75 as of September 30, 2024, and at P/BV of 2.37 based on its post-IPO NAV of Rs. 84.36 per share.

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 9.61, and based on FY24 earnings, the P/E stands at 25.12. The issue appears fully priced. 

For the reported periods, the company has posted PAT margins of 5.07% (FY22), 12.82 % (FY23), 14.79% (FY24), 14.77% (H1-FY25), and RoCE margins of 18.97% (FY22), 32.97% (FY23), 42.25% (FY24), 39.95% (H1-FY25). 

DIVIDEND POLICY:
The company has not paid any dividends since incorporation. 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 shown Archidply Ind., Sylvan Ply, and Duroply Ind., as their listed peers. They are trading at a P/E of NA, 28.6 and 87 (as of November 14, 2024). However, they are not truly comparable on an apple-to-apple basis. The list of listed peers appears to be an eyewash. 

MERCHANT BANKER'S TRACK RECORD:
This is the 14th mandate from Inventure Merchant in the last four fiscals (including the ongoing one).  Out of the last 10 listings, 2 opened at discount, 1 at par and the rest opened with a premiums ranging from 0.05% to 90% on the date of listing. In general, it has a weak track record.

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