Manoj Ceramic BSE SME IPO review (May apply)

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Review By Dilip Davda on December 23, 2023

•    MCL is in the business of trading of ceramic tiles and tiles adhesive.
•    It has marked growth in its top and bottom lines for the reported periods. 
•    The sudden boost in its bottom lines from FY23 onwards raise eyebrows. 
•    The sustainability of such margins going forward in a highly competitive segment is a major concern. 
•    Well-informed investors may park moderate funds for the medium term rewards.

ABOUT COMPANY:
Manoj Ceramic Ltd. (MCL) is into the business of trading of ceramic tiles and Tiles Adhesive under its own brand "MCPL" through dealer network, Retail showroom, wholesale as BTB and export. MCL had dealerships with Qutone Ceramics Private Limited for the period January 2018, up to December 2018, Varmora Granito Private Limited for the period September 2019, up to August 2022.

The Company has also incorporated its subsidiary company in London, UK under the name of MCPL Ceramic Limited. 

It specializes in two products: Ceramic Tiles and Tile Adhesive. Its range of Ceramic Tiles offers a captivating designs, colors, and sizes, for transforming any space into a work of art. Additionally, its Tile Adhesive guarantees a strong bond, ensuring a seamless and lasting installation for valued customers.

At present the company has a dealer network of in Western and Southern region of India mainly Maharashtra, Goa, Tamil Nādu, and Karnataka. It provides goods to dealer for display at their showroom and as a customer visits the store and expresses interest in a particular product, the showroom owner then places an order with the Company for the exact quantity required by the customer. This enables MCL for ensuring offering a tailored and efficient order fulfillment system to meet the diverse needs of its customers. To provide the best of service in minimum time possible, it has set up its depos also at strategic location such as Morbi, Thane, Mumbai, and Bangalore.

MCL have established retail showroom at strategic location of Mumbai and Bangalore i.e. Mumbai at Ghatkopar, Andheri, and at Bangalore in Raja Rajeshwari Nagar. At this location it sales goods to end user who comes walk-in in to the showroom and based on the design at display select the same and place the order. It displays a wide range of Ceramic tiles at showroom and provide the facility to end user to select the right tiles through its AI based software named "Studio" which is available at its website i.e. MCPLworld.com. As of the date of filing this offer document, it had 115 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 2334000 equity shares of Rs. 10 each at a fixed price of Rs. 62 per share to mobilize Rs. 14.47 cr. The issue opens for subscription on December 27, 2023, and will close on December 29, 2023. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 28.01% of the post-IPO paid-up capital of the company. The company is spending Rs 1.89 cr. for this IPO process and from the net proceeds, it will utilize Rs. 9.50 cr. for working capital, and Rs. 3.08 cr. for general corporate purposes.

The issue is solely lead managed by Swaraj Shares and Securities Pvt. Ltd. and Purva Sharegistry (India) Pvt. Ltd. is the registrar of the issue. Shreni Shares Ltd. is the market maker for the company.

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 29 - Rs. 30.20 per share (on the basis of Rs. 10 FV) between September 2012 and November 2018. It has also issued bonus shares in the ratio of 30for 1 in August 2023. The average cost of acquisition of shares by the promoters is Rs. 0.47, Rs. 1.42, Rs. 2.50, Rs. 5.45, Rs. 8.00, Rs. 12.17 per share.

Post-IPO, MCL's current paid-up equity capital of Rs. 6.00 cr. will stand enhanced to Rs. 8.33 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 51.67 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company posted a total income / net profit of Rs. 37.31 cr. / Rs. 0.08 cr. (FY21), Rs. 45.00 cr. / Rs. 0.95 cr. (FY22), and Rs. 74.93 cr. / Rs. 3.62 cr. (FY23). For H1 of FY24 ended on September 30, 2023, it earned a net profit of Rs. 3.02 cr. on a total income of Rs. 43.75 cr.

For the last three fiscals, the company has reported an average EPS of Rs. 142.03 (on pre-bonus basis) and is missing ex-bonus basis EPS data. It has posted an average RoNW of 17.32%. The issue is priced at a P/BV of 2.31 based on its NAV of Rs. 26.83 as of September 30, 2023, and at a P/BV of 1.69 based on its post-IPO NAV of Rs. 36.68 per share. 

If we attribute FY24 annualized super earnings to post-IPO fully diluted paid-up equity capital of the company, then the asking price is at a P/E of 8.56, thus the issue appears lucratively priced, but the margins posted by it raise eyebrows and concern over its sustainability going forwards, as it is in the highly competitive and fragmented segment. 

DIVIDEND POLICY:
The company has not declared any dividends for any reported financial years. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, company has shown Asian Granito, Murudeshwar Ceramics, Orient Bell as their listed peers. They are trading at a P/E of 00, 47.76, and 71.86 (as of December 22, 2023). However, they are not comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 6th mandate from Swaraj Shares in the current fiscals. Out of the last 4 listings, 1 opened at discount, and the rest with premiums ranging from 15.38% to 90% on the date of listing. 

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