Magson Retail NSE SME IPO review (Apply)

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Review By Dilip Davda on June 20, 2023

•    MRDL is in the retail and distribution business of food items. 
•    It has posted steady growth for the reported periods.
•    Based on its FY23 earnings, the issue appears fully priced.
•    Investors may consider parking funds for medium to long-term rewards.

ABOUT COMPANY:
Magson Retail and Distribution Ltd. (MRDL) is engaged in the retail and Distribution business of gourmet, frozen food and speciality foods. The company has its corporate office located in Ahmedabad, Gujarat.  Under the Retail Business, currently, the company operates 26 retail stores/outlets of which 16 are operated by the company and 7 are operated by franchise owners and 3 stores are operated under 2 joint ventures, MRDL operates all its stores under the registered brand name "MagSon". 

The said stores/outlets are located across Western India with 26 outlets in prominent cities which includes one each in Thane, Maharashtra, Udaipur, Rajasthan, Gandhinagar, Gujarat, Anand, Gujarat, Rajkot, Gujarat, Jamnagar, Gujarat and Gandhidham, Gujarat. Three stores each in Surat, Gujarat, Vadodara, Gujarat and thirteen stores/outlets in Ahmedabad (including one chocolate store). The total retail space of 26 outlets/stores is more than 30,000 Sq.Ft. with the total stock (SKU) count in the store being more than 3000 units.

MRDL also has a presence on e‐commerce and online shopping, it has developed an e‐commerce mobile app available both for Apple and Android users. With the help of mobile applications, customers can order online and get the products delivered. The mobile application also helps to send regular updates to customers and built customer relations.

Under the Business under own Brand RF Gourmet in December 2021 launched Rf Gourmet its own brand has a range of premium products such as French Fries, Fiery Fries, Chilli Garlic Potato Shots, Delhi Aloo Tikki, Veggie Burger Tikki, Chunky Fries, Eggs and a range of Chicken Seekh Kababs. All products in this brand are sourced from top vendors ensuring premium quality and then are packed and marketed by Magson under this Brand. 

All the products under this brand are introduced after analyzing the prevailing market gap and increasing demand for its products. Under the expansion plan, the company will be packing RF Gourmet products in its own godown as part of backward integration. The said strategy of Backward Integration will help it in increasing margins from the distribution business and in the long run it will help to develop core competence.

Under the Distribution business, the company has on rent a warehouse of more than 14,000 Sq.Ft. in Ahmedabad, Gujarat from where it manages its inventory. MRDL procures 75% of the products directly from the manufacturers thereby eliminating the middlemen which enables the company to earn higher margins. The other 25% is supplied directly from other distributors/wholesalers. As of March 31, 2023, it had 149 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 2114000 equity shares of Rs. 10 each at a fixed price of Rs. 65 per share to mobilize Rs. 13.74 cr. The issue opens for subscription on June 23, 2023, and will close on June 27, 2023. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.93% of the post-IPO paid-up capital of the company. MRDL is spending Rs. 0.50 cr. for this IPO process and from the net proceedings, it will utilize Rs. 3.94 cr. for opening new stores, Rs. 8.00 cr. for working capital, and Rs. 1.30 cr. for general corporate purposes. The company has plans to open 10 new stores in the coming two years.

ISK Advisors Pvt. Ltd. is the sole lead manager and Bigshare Services Pvt. Ltd. is the registrar of the issue. Sunflower Broking Pvt. Ltd. is the market maker for the company. 

Having issued initial equity shares at par, the company issued further equity shares at a price of Rs. 65 per share in March 2023. It has also issued bonus shares in the ratio of 549 for 1 in September 2022. The average cost of acquisition of shares by the promoters is negligible per share. (However, exact cost data is missing from the offer document).

Post-IPO, MRDL's current paid-up equity capital of Rs. 5.74 cr. will stand enhanced to Rs. 7.85 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 51.03 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, MRDL posted a turnover/net profit of Rs. 53.59 cr. / Rs. 1.82 cr. (FY21), Rs. 55.67 cr. / Rs. 2.23 cr. (FY22), and Rs. 63.02 cr. / Rs. 2.52 cr. (FY23). 

For the last three fiscals, MRDL has reported an average EPS of Rs. 4.31 and an average RoNW of 35.20%. The issue is priced at a P/BV of 4.03 based on its NAV of Rs. 16.14 as of March 31, 2023, and at a P/BV of 2.22 based on its post-IPO NAV of Rs. 29.30 per share. 

If we attribute FY23 earnings to post-IPO fully diluted paid-up capital, then the asking price is at a P/E of around 20.25. Thus the issue appears fully priced.

DIVIDEND POLICY:
The company has paid a dividend of 5% for FY23. 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:
This is the 5th mandate from ISK Advisors in the last four fiscals (including the ongoing one). Out of the last 4 listings, all were listed at premiums ranging from 1.08% to 41.27% on the listing date. 

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