Macfos BSE SME IPO review (May apply)

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Review By Dilip Davda on February 15, 2023

•    ML is an e-commerce platform for electronic components marketing. 
•    It does third-party product marketing and has no own facility to manufacture.
•    The company has posted robust growth in top and bottom lines for the last 18 months working.
•    Based on its current working the issue appears fully priced. 
•    Well-informed/cash surplus investors may consider parking funds. 

ABOUT COMPANY:
Macfos Ltd. (ML) is engaged in the business of e-commerce and marketing a broad range of electronic components. It is driven by the motto, "Your Ideas, Our Parts".  Thus it is primarily an e-commerce based Company focused on the marketing of a broad range of electronic components which finds application in basic and advanced engineering products & projects, including emerging technologies such as IoT, Robotics, Automation, Drone, Electric Vehicles, 3D Printing and Auto Guided Vehicles. 

Its broad portfolio consists of over +12,000 SKUs of electronics components and parts that facilitate consumers such as manufacturers, electrical & mechanical engineering students, educational institutions, researchers and developers, to turn their ideas into reality and speed up their product R&D and prototyping cycle. Through an e-commerce website and mobile application, Robu.in, ML sells a broad range of electronic items, including robotic parts, drone parts, E-bike parts, IoT & Wireless items, 3d printers & parts, DIY learning kits, development boards, Raspberry Pi (Single board computers& Peripherals), sensors, motors, motor drivers, pumps, batteries, chargers, electronic modules & displays and various other mechanical and electronic components.

As of September 30, 2022, it is connected with over +140 overseas and domestic vendors for sourcing electronic items and parts. The company also has a portfolio of 3 owned brands which are manufactured/procured from third parties based on the specifications built by it through R&D efforts. With the dedicated fulfilment Centre in Pune, Maharashtra comprising of 7,900 sq. ft. area and third-party logistics services, it can deliver the products across India and overseas. In F.Y. 2021-22, it has served over 2 lakh orders from all 28 states of India and 6 Union Territories of India.

Some of the esteemed customers who have been served by ML include ONGC, M&M, Hindustan Aeronautics Ltd., Tata Power Solar Systems Ltd., Central Electronics Engineering Research Institute, Pilani, Wipro Enterprises Pvt. Ltd., Bharat Forge Ltd., Tata Communications Ltd., Schneider Electric India Private Limited etc. As of November 30, 2022, it had 94 employees on its payroll and an additional 38 contract labours.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 2328000 equity shares of Rs. 10 each via book building route to make an Offer for Sale (OFS). It has announced a price band of Rs. 96 - Rs. 102 per share. At the upper cap it mulls mobilizing Rs. 23.75 cr. The issue opens for subscription on February 17, 2023, and will close on February 21, 2023. A minimum number of shares to be applied per application is 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.35% of the post-issue paid-up capital of the company. After the allocation of 5% for the market maker, from the net issue, it has allocated 50% for QIBs, 15% for HNIs and 35% for the Retail investors. Since this is a pure secondary offer, no money is going to the company and the offerors will get the entire fund raised via this issue. The issue is being made for providing exit to some of its stakeholders and the listing benefits. 

Hem Securities Ltd. is the sole lead manager and market maker for this company and Bigshare Services Pvt. Ltd. is the registrar of the issue. 

Having issued initial equity shares at par, the company issued further equity shares at Rs. 69303.35 per share in March 2021 and has also issued bonus shares in the ratio of 870 for 1 in November 2022. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 1.14 per share.  

This being an OFS, post-issue, ML's paid-up equity capital will remain the same at Rs. 8.84 cr. Based on the upper cap of the IPO price, the company is looking for a market cap of Rs. 90.12 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, ML has posted a turnover/net profit of Rs. 16.22 cr. / Rs. 0.33 cr. (FY20), Rs. 27.34 cr. / Rs. 1.58 cr. (FY21), and Rs. 55.87 cr. / Rs. 6.01 cr. (FY22). For H1 of FY23, it earned a net profit of Rs. 2.96 cr. on a turnover of Rs. 36.05 cr. Thus it has marked constant growth in its top and bottom lines. The sudden boost in its bottom lines for the last 18 months of working raises eyebrows. 

For the last three fiscals, ML has reported an average EPS of Rs. 4.07, and an average RoNW of 60.41%. The issue is priced at a P/BV of 7.46 based on its NAV of Rs. 13.67 as of September 30, 2022, as well as post-IPO. 

If we annualize FY23 earnings and attribute it to the post-IPO equity base, then the asking price is at a P/E of around 15.22. Thus issue appears fully 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 no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
The Lead Manager associated with this issue has handled 21 public issues in the past three years out of which 1 issue closed below the issue price on the listing date. 

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