Mangalam Worldwide NSE SME IPO review (May apply)

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Review By Dilip Davda on June 22, 2022

•    MWL is engaged in the manufacturing and marketing of SS billets/flat bars.
•    It posted average performance with steady growth till FY21.
•    It posted super-profits for FY22 following a surge in commodity prices. 
•    Sustainability of super performance raises concern post-cooling of commodity markets.
•    The issue is aggressively priced; risk seekers/cash surplus investors may park their funds.

ABOUT COMPANY:
Mangalam Worldwide Ltd. (MWL) is mainly engaged in manufacturing Stainless Steel (SS) Billets and rolling SS Flat Bars with its fully integrated infrastructure consisting of steel melting shops, rolling mills and finishing machines at plants located at Halol (Unit-I) and Changodar (Unit-II), Gujarat. The company also does the manufacturing of Stainless Steel (SS) Billets on a job-work basis. To cater for the demand of customers for SS Round bars and SS Bright bars, it gets manufacturing of such products on a job-work basis from third-party manufacturers. 

MWL is also engaged in the trading of steel - scrap, ferroalloys, etc. It manufactures a wide range of stainless steel of 200 series, 300 series (including series 304 and series 316), 400 series - grades in Austenitic, Ferritic, Martensitic and special chemical composition grades steel like 17/4 PH, Duplex and Super Duplex Steel. 

The company had taken the Units along with plant and machinery on a lease & license basis from the lessors' M/s. Agarwal Mittal Concast Private Limited (Lessor company) and M/s. Vicor Stainless Private Limited (Lessor company) having their plants located at Halol (Unit-I) and Changodar (Unit - II) respectively on November 29, 2019, in order to tap the opportunities in the steel industry. Now they are amalgamated with MWL post-NCLT / IBC resolutions. As of May 31, 2022, it has 137 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 52 cr.) and general corporate purposes (Rs. 13 cr.), MWL is coming out with a maiden IPO of 6493200 equity shares of Rs. 10 each at a fixed price of Rs. 101 per share to mobilize Rs. 65.58 cr. The issue opens for subscription on June 30, 2022, and will close on July 04, 2022. The minimum application to be made is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.50% of the post-IPO paid-up capital of the company. MWL is spending Rs. 0.58 cr. for this IPO process. 

The issue is solely lead managed by Beeline Broking Ltd. and Link Intime India Pvt. Ltd. is the registrar to the issue. Sunflower Broking Pvt. Ltd. is the market maker for this IPO. 

Having issued initial equity capital at par, MWL raised further equity in the price range of Rs. 33 to Rs. 435 per share between March 2019 and February 2022. It has also issued bonus shares in the ratio of 50 for 1 in September 2021. The average cost of acquisition of shares by the promoters is Rs. 4.59, Rs. 14.78 and Rs. 14.79 per share. 

Post-IPO, MWL's current paid-up equity capital of Rs. 18.01 cr. will stand enhanced to Rs. 24.50 cr. At the IPO pricing, the company is looking for a market cap of Rs. 247.46 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, for the last xxx fiscals, MWL has (on a consolidated basis) posted turnover/net profits of Rs. 303.32 cr. / Rs. 2.65 cr. (FY21) and Rs. 533.48 cr. / Rs. 12.31 cr. (FY22). While it posted growth in its top line, but jump in the bottom-line many folds for FY22 can be attributed to the surge in commodity prices globally. The sustainability of such performance going forward raises concern. 

On a standalone basis, for the last three fiscals, MWL has posted an average EPS of Rs. 5.51 and an average RoNW of 22.77%. While on a consolidated basis, for the last two fiscals, MWL has posted an average EPS of Rs. 6.85 and an average RoNW of 24.90%. The issue is priced at a P/BV of 4.00 based on its NAV of Rs. 25.25 as of March 31, 2022, and at a P/BV of 2.23 based on its post-IPO NAV of Rs. 45.33 per share. 

If we attribute FY22 consolidated earnings on post IPO fully diluted equity capital, then the asking price is at a P/E of 20.12. Thus the issue is priced greedily. 

COMPARISON WITH LISTED PEERS:
As per the offer document, MWL has shown Shah Alloys and India Steel as its listed peers. They are currently trading at a P/E of 1.34 and 00 (as of June 22, 2022). However, they are not truly comparable on an apple-to-apple basis. 

DIVIDEND POLICY:
MWL paid a dividend of 2% / 4% (on DVR shares) for FY19 and FY20 and thereafter it skipped. 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 15th mandate from Beeline Broking in the last five fiscals (including the ongoing one). Out of the last 10 listings, 3 opened at a discount, 3 at par and the rest with premiums ranging from 1.59% to 9% on the day of listings. Thus it has a poor track record.

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