MCON Rasayan NSE SME IPO review (May apply)

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Review By Dilip Davda on March 1, 2023

•    MRIL is engaged in the business of modern building materials/construction chemicals.
•    It has posted average financial data so far. 
•    Its comparison with bigwigs like Asian Paints, Pidilite, and Kansai Nerolac is surprising. 
•    Based on its FY23 earnings, the issue appears fully priced. 
•    Only well-informed/cash surplus investors may take a risk, others can avoid it.

ABOUT COMPANY:
MCON Rasayan India Ltd. (MRIL) is engaged in the business of manufacturing, marketing and selling modern building materials and construction chemicals with a suite of more than 80 products which includes a range of construction materials and construction chemicals in both powder and liquid forms. 

Its powder products such as ready mix plaster, tile adhesives, block adhesives, wall putty, micro concrete & polymer mortar, engineering non-shrink grouts and floor hardeners are widely used in the building construction segment, and liquid portfolio having products such as poly-urethane (PU) based liquid membrane, bonding agents, paints, anti-corrosive coatings, concrete admixtures and curing compounds. MRIL's products are marketed and sold under the "MCON" brand.

Its total installed manufacturing capacity will be 36,000 MTPA for powder products and 6,000 MTPA for liquid products by the end of FY 2023. It supplies products to more than 100 distributors and dealers which in turn supply them to more than 1300 retailers based in the States of Maharashtra, Gujarat and Rajasthan who serve various developers, contractors and architects in these western regional markets. As of the date of filing this offer document, it had 105 employees on its payroll. It also employs casual labour as and when required. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 1710000 equity shares of Rs. 10 each at a fixed price of Rs. 40 per share to mobilize Rs. 6.84 cr. The issue opens for subscription on March 06, 2023, and will close on March 10, 2023. The minimum application is to be made for 3000 shares and in multiples thereon thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 27.13% of the post-issue paid-up capital of the company. MRIL is spending Rs. 0.70 cr. for this IPO process and from the net proceedings, it will utilize Rs. 4.50 cr. for working capital, Rs. 1.64 cr. for general corporate purposes. Higher spending indicates arranged funding.

GYR Capital Advisors Pvt. Ltd. is the sole lead manager and Link Intime India Pvt. Ltd. is the registrar of the issue. Econo Broking Pvt. Ltd. is the market maker for the company. 

Having issued initial equity shares at par, the company issued further shares at a price of Rs. 40 per share in August 2022 and October 2022. It has also issued bonus shares in the ratio of 1.25 for 1 in October 2022. The average cost of acquisition of shares by the promoters is Rs. 7.64 per share. 

Post-IPO, MRIL's current paid-up equity capital of Rs. 4.59 cr. will stand enhanced to Rs. 6.30 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 25.22 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, MRIL has posted a turnover/net profit of Rs. 8.97 cr. / Rs. 0.04 cr. (FY20), Rs. 9.00 cr. / Rs. 0.19 cr. (FY21), and Rs. 19.22 cr. / Rs. 0.44 cr. (FY22). For the H1 of FY23 ended on September 30, 2022, it earned a net profit of Rs. 0.86 cr. on a turnover of Rs. 13.05 cr.  Super earnings for the first half raise eyebrows.

For the last three fiscals, the company reported an average EPS of Rs. 2.20 and an average RoNW of 14.06%. The issue is priced at a P/BV of 1.64 based on its NAV of Rs. 24.37 as of September 30, 2022, and at a P/BV of 1.95 based on its post-IPO NAV of Rs. 20.48 per share. 

If we annualize FY23 earnings and attribute it to post-IPO fully diluted paid-up equity capital base, the asking price is at a P/E of 14.71. Thus the issue appears fully priced. 

DIVIDEND POLICY:
The company paid a dividend of 1% for FY21 during 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, surprisingly the company has shown Asian Paints, Pidilite Ind., and Kansai Nerolac as their listed peers. They are currently trading at a P/E of 72.06, 91.02, and 52.12 (as of March 01, 2023). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 13th mandate from GYR Capital in the last two fiscals (including the ongoing one). Out of the last 10 listings, all were listed at premiums ranging from 2.45% to 151.10% on the listing date. 

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