Nexxus Petro BSE SME IPO review (Avoid)

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Review By Dilip Davda on September 24, 2024

•    The company is engaged in trading and manufacturing and selling of petro hem products i.e. Bitumen.
•    It has posted growth in its top and bottom lines for the reported periods. 
•    The company is operating in a highly competitive and fragmented segment. 
•    Based on FY24 earnings, the issue appears aggressively priced. 
•    There is no harm in skipping this pricey "High Risk/Low Return" offer.

PREFACE:
Though this IPO is opening, the company did the regulatory process and filed its final documents on September 22, 2024, and made the document available only by 23th eve. This last minute rush is not only surprising the primary markets, but also raises concern on half-heartedly preparation of offer documents with many anomalies. This is not a fair practice considering the interest of minority investors. In this offer document, post-IPO NAV data is missing. The quantum of Rights issue in September 2023 is shown wrong as 5100000 against 2500000 shares (Refer page no. 52 of the document).

ABOUT COMPANY:
Nexxus Petro Industries Ltd. (NPIL) is engaged in trading, manufacturing and selling of Petrochem products namely Bitumen products. Its product is widely used in infrastructure sector being road construction industry. Its range of products includes various grades of Bitumen which are classified on the base of viscosity and related properties of each grades. Presently, the company procures bitumen via imports from Dubai as well as purchase from other domestic importers/sellers in India. 

NPIL further processes the bitumen procured at its processing units located at Mundra, Gujarat; Pali, Rajasthan; Bhopal, Madhya Pradesh. Apart from sale of processed bitumen, it also trades in bitumen by directly selling it to customers as per the requirement. It endeavours to supply products to Customers at competitive prices yet keeping quality standards.

Its present manufacturing and processing units are well equipped with the required facilities including machinery, other handling equipments to facilitate smooth manufacturing process and easy logistics. The company endeavours to maintain safety in premises by adhering to key safety norms, established through its internal safety protocols. It has well equipped testing laboratory. As of the date of this offer document, it had 17 employees on its payroll, and it also employs daily wage workers for various departments as per day to day need.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 1850400 equity shares of Rs. 10 each at a fixed price of Rs. 105 per share to mobilize Rs. 19.43 cr. The issue opens for subscription on September 26, 2024, and will close on September 30, 2024. The minimum number of shares to be applied is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.62% of the post-IPO paid-up capital of the company. The company is spending Rs. 1.94 cr. for this IPO process, and from the net proceeds of the IPO, the company will utilize Rs. 16.00 cr. for working capital, and Rs. 1.49 cr. for general corporate purposes. 

The IPO is solely lead managed by Srujan Alpha Capital Advisors LLP., and KFin Technologies. Ltd. is the registrar to the issue. Gretex Share Broking Ltd., is the Market Maker for the company. 

The company has issued entire initial equity shares at par value. It has also issued bonus shares in the ratio of 25 for 1 in September 2023. The average cost of acquisition of shares by the promoters is Rs. 1.28, and Rs. 6.71 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 5.10 cr. will stand enhanced to Rs. 6.95 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 72.98 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 48.47 cr. / Rs. 0.54 cr. (FY22), Rs. 142.84 cr. / Rs. 2.01 cr. (FY23), and Rs. 238.38 cr. / Rs. 3.49 cr. (FY24). 

For the last three fiscals, the company has reported an average EPS of Rs. 7.42 and an average RoNW of 78.68%. The issue is priced at a P/BV of 6.20 based on its NAV of Rs. 16.93 as of March 31, 2024, but the offer document is missing its post-IPO NAV data.

If we attribute FY24 earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 20.96, and based on FY23 earnings, the P/E stands at 36.33. The issue relatively appears aggressively priced.

For the reported periods, the company has posted PAT margins of 1.12% (FY22), 1.41% (FY23), 1.47% (FY24), and RoCE margins of 18.16%, 30.73%, 20.81% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not paid any dividends since incorporation. 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 Agarwal Industrial as their listed peer. It is trading at a P/E of 14.6 (as of September 24, 2024). However, they are not truly comparable on an apple-to-apple basis.  

MERCHANT BANKER'S TRACK RECORD:
This is the 6th mandate from Srujan Alpha in the last three fiscals (including the ongoing one).  From the 5 listings so far, 1 opened at discount, 2 at par and the rest with premiums ranging from 0.125% and 32.5% on the date of listing.

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