NeoPolitan Pizza BSE SME IPO review (May apply)

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Review By Dilip Davda on September 27, 2024

•    The company is engaged in the business of trading in agri commodities and QSRs under its own brand.
•    It marked steady growth in its top and bottom lines for the reported periods.
•    The company is adding 25 new QSRs with IPO funding.
•    Based on FY24 earnings, the issue appears fully priced.
•    Well-informed investors may park moderate fund for long term.

ABOUT COMPANY:
NeoPolitan Pizza & Foods Ltd. (NPFL) which was incorporated under the name and style of JRM Fertilizer Pvt. Ltd. In 2011, but changed its name to NeoPolitan Pizza Pvt. Ltd. In 2012 to match the plans of its diversion of business. It got converted in to public limited company in October 2014 and the shares were listed on NSE Emerge ITP in November 2014. 

Since there was no fruitful purpose going to be achieved by keeping the Shares of the company listed with the National Stock Exchange of India Limited on its Institutional Trading platform and since the company found no significant tangible advantage to the shareholders and the investors of the Company, the Company took effective steps for voluntary delisting of the company's Equity Shares from the National Stock Exchange of India Limited on its Institutional Trading Platform to avoid unnecessary financial and administrative burden due to multiple compliance of the various Regulations of securities and Exchange Board of India.

The Company had made an application for delisting and NSE vide its letter dated May 31, 2018 hereby notified that the securities shall be delisted w.e.f. June 07, 2018 (i.e. w.e.f. closing hours of trading on June 06, 2018). Further the admissions to dealings in the securities were withdrawn w.e.f. June 14, 2018.

NPFL operates in two segments, namely the restaurant business and the trading of agricultural commodities. In the restaurant business, the company owns and operates its own restaurants as well as operates through a franchise model. The company offers Neopolitan-style pizza, which is a traditional Italian pizza made with fresh ingredients. The menu includes a variety of toppings, and the company offers gluten-free and vegetarian options. The brand was named "Neopolitan Pizza" a name derived from little village of Italy where Pizza originated. The concept continued to thrive after adopting the Unlimited Buffet idea "ALL YOU CAN EAT". 

The newly re-designed and rebranded Neopolitan Pizza concept pushes the limits of the regular restaurant experience by offering a variety of Soup, Exotic Salads, freshly baked Bread, Pasta, Hand Tossed Pizza and Dessert including such popular items as flat bread pizzas and many more. The concept of Neopolitan Pizza is very family oriented and kid friendly. In addition to the restaurant business, the company also engages in the trading of agricultural commodities. The company deals in products such as wheat, rice, tomatoes, onions, and other such products. The trading segment of the business aims to source high-quality agricultural products from trusted suppliers and sell them to customers at competitive prices. The company's strategy is to leverage its expertise in the food industry to offer a unique and high-quality dining experience to its customers while also diversifying its revenue streams by engaging in commodity trading. The company's focus on sourcing high-quality ingredients for its pizza also applies to its trading business, where the company aims to ensure that its products meet strict quality standards.

Further, NPFL has strategically expanded its global footprint through an investment of $87,500 in its wholly-owned subsidiary Neoindian Pizza Inc. located in the USA. This strategic move underscores company's commitment to diversify its operations, fostering international partnerships, and capitalizing on emerging market opportunities. This is a testament to company's confidence in the potential for growth and profitability in the targeted region. Leveraging its extensive industry expertise, company aims to position the subsidiary as a key player in the local market, capitalizing on synergies and unlocking new avenues for revenue generation.

As of March 31, 2024, it had 21 Restaurants located in more than 16 cities, spread across 2 states and union territories in India. It is now adding 25 new QSRs with IPO funding. As of March 31, 2024, it had 33 employees (including 20 contract workers.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 6000000 equity shares of Rs. 10 each at a fixed price of Rs. 20 per share to mobilize Rs. 12.00 cr. The issue opens for subscription on September 30, 2024, and will close on October 04, 2024. The minimum number of shares to be applied is for 6000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 35.29% of the post-IPO paid-up capital of the company. The company is spending Rs. 0.30 cr. for this IPO process, and from the net proceeds, the company will utilize Rs. 7.08 cr. launching new 25 QSR, Rs. 0.26 cr. for security deposits and advance rent, Rs. 0.13 cr. for brokerage, Rs. 3.52 cr. for working capital, and Rs. 0.71 cr. for general corporate purposes. 

The IPO is solely lead managed by Turnaround Corporate Advisors Pvt. Ltd., and Bigshare Services Pvt. Ltd. is the registrar to the issue. MNM Stock Broking Pvt. 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. 20 -Rs. 900, between October 2014, and March 2023. It has also issued bonus shares in the ratio of 3 for 5 in September 2014. The average cost of acquisition of shares by the promoters is Rs. 6.25, and Rs. 12.73 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 11.00 cr. will stand enhanced to Rs. 17.00 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 34.00 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 16.31 cr. / Rs. 0.18 cr. (FY22), Rs. 20.05 cr. / Rs. 1.17 cr. (FY23), and Rs. 44.01 cr. / Rs. 2.11 cr. (FY24). 

For the last three fiscals, the company has reported an average EPS of Rs. 1.48 and an average RoNW of 9.78%. The issue is priced at a P/BV of 1.38 based on its NAV of Rs. 14.46 as of March 31, 2024, and at a P/BV of 1.18 based on its post-IPO NAV of Rs. 16.95 per share.

If we attribute FY24 earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 16.13, and based on FY23 earnings, the P/E stands at 28.99. The issue relatively appears fully priced.

For the reported periods, the company has posted PAT margins of 1.13% (FY22), 5.83 % (FY23), 4.75% (FY24), and RoCE margins of 4.65%, 12.66%, 17.06% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not paid 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. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Restaurant Brands, and Barbeque-Nation, as their listed peer. They are trading at a P/E of NA and NA (as of September 27, 2024). However, they are not truly comparable on an apple-to-apple basis.  

MERCHANT BANKER'S TRACK RECORD:
This is the 3rd mandate from Turnaround Corporate in the last four fiscals (including the ongoing one).  From the 2 listings so far, all opened with premiums ranging from 0.20% and 0.90% on the date of listing. Thus it has posted an average track record so far.

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