Nureca Ltd IPO review (May apply)

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Review By Dilip Davda on February 10, 2021

• Nureca is in the business of home healthcare and wellness products.
• FY21, H1 performance in IPO year raises eyebrows.
• Sustainability of super performance amidst a highly fragmented market remains a major concern.
• Nureca is offering a discount of Rs. 20 per share to eligible employees only.
  
  

ABOUT COMPANY:
NURECA Ltd. (NURECA) is a B2C company engaged in the business of home healthcare and wellness products which offers quality, durability, functionality, usability and innovative designs. Post COVID-19 the health awareness is surmounting and devices like Pulse Oximeters, Thermometers, Nebulizers, Self-monitoring glucose Devices, Humidifier and Steamers, wheelchairs, walkers, lumbar, breast pumps, bottle sterilizers, bottle warmers, car seats, baby carrycots, Nutrition supplements, Lifestyle products etc. are catching attention.

According to WHO, markets for such devices is expected to grow at a CAGR of 10% + and India is the major market with around 84%+ market share. NURECA is marketing its products in India on its own website drtrust.in and also using third-party e-commerce platforms, distributors and retailers. According to management, since the onset of the COVID-19 pandemic in March 2020, the company has responded swiftly by implementing various processes to ensure continuous and seamless operations that have resulted in the boosted top and bottom lines. NURECA is selling its products under the brand names of 'Dr.Trust', 'Dr. Physio' and 'TRUMOM'.

While the company's own manufacturing unit at Chandigarh is operating at around 20% capacity utilization, it majorly outsources its products from domestic and international markets. (Page 112 of RHP)

As of the date of filing of its RHP, the company has received 66 trademarks, 6 copyrights and 92 designs registration and has applied for more 12 trademark registration.

Currently, the company's 95% revenue comes from e-commerce and digital channels. It is now expanding its offline outlets and has a marketing team of 21 employees and overall 74 headcounts as on December 31, 2020. The Company follows prudent inventory management which is a critical point for its business success. The company is operating in a highly fragmented market with many local and global players in the field.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans for incremental working capital (Rs. 75 cr.) and general corpus fund needs, the company is coming out with a maiden IPO worth Rs.100 cr. The company has fixed the price band of Rs. 396 - Rs. 400 per share of Rs. 10 face value. Based on the upper price band, the company will be issuing approx. 2500000 shares. It has reserved shares worth Rs. 1 cr. for eligible employees and will offer a discount of Rs. 20 per share to them. Minimum application is to be made for 35 shares and in multiples thereof, thereafter. The issue opens for subscription on February 15, 2021, and will close on February 17, 2021. Post allotment, shares will be listed on BSE and NSE. Issue constitutes 25% of the post issue paid up capital of the company.

The issue is solely lead managed by ITI Capital Ltd. and Link Intime India Pvt. Ltd. is the registrar to the issue.

According to the lead manager, since the company could not meet the required parameters for IPO and Listing guidelines, it had to opt for 75% QIB, 15% for HNI and 10% Retail investor's quota. As the issue is below Rs. 250 cr., its initial listing will be in 'T' group which may eliminate speculation for the said period.

Having converted initial equity at no cost, the company issued further equity under private placement at a price of Rs. 100 per share in October 2020. It has also issued bonus shares in the ratio of 6 for 1 in September 2020. The average cost of acquisition of shares by the promoters is Rs. NIL per share.

NURECA's current paid-up equity capital of Rs. 7.50 cr. will stand enhanced to Rs. 10.00 cr. post issue. Based on the upper band price of the IPO, it is looking for a market cap of Rs. 400 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, on a consolidated basis, NURECA has posted total income/net profits of Rs. 20.07 cr. / Rs. 3.11 cr. (FY18), Rs. 61.98 cr. / Rs. 6.27 cr. (FY19) and Rs. 99.49 cr. / Rs. 6.40 cr. (FY20). For the first half ended on September 30, 2020, it has earned a net profit of Rs. 36.18 cr. on a turnover of Rs. 122.97 cr. According to management, the company has reaped benefits from the ongoing pandemic and such performance is likely in the near term with changing lifestyle and rising awareness for hygiene and health related products.

For the last three fiscals, the company has reported an average EPS of Rs. 8.28 and an average RoNW of 77.69%. The issue is priced at a P/BV of 5.42 (at the upper price band) based on its NAV of Rs. 73.78 as on September 30, 2020, and at a P/BV of 2.55 based on its post IPO NAV of Rs. 156.62 (at the upper price band).

If we attribute annualize latest earnings on fully diluted post issue equity, then asking price is at a P/E of around 5.53, which makes it lucratively priced offer. Based on last three fiscals' average EPS the P/E stands at 64.41 and on FY20 earnings, the P/E comes 58.35 (based on post issue paid up equity capital). Sustainability of super performance in IPO year (for FY21 H1) is a major concern.

MAJOR CONCERNS:

1. Forecast for its holding level days for trade receivables and trade payables are 50 and 10 days. Rising competition and Government policies may raise concern going forward. (refer p70 of RHP)
2. The Higher magnitude of projected trade receivables for next three fiscals raises concern. (Refer p70 of RHP).
3. Company's own assembling plant operated at just 20% capacity utilization for FY 21 (partial operation) with a team of just 4 employees. (Refer p111 and p112 of RHP)
4. Current revenue is largely from selling third-party/assembled imported devices. Change in Government policies may impact it's working.
5. Family dispute raises concern for its current lease of Chandigarh plant renewals. (refer p 38 of RHP)

COMPARISION WITH LISTED PEERS:
As per offer documents, NURECA has no listed peers to compare with.

BRLM'S TRACK RECORDS:
The Book Running Lead Managers associated with the offer has handled 1 public issue in the past three years which closed below the issue price on listing date.

Nureca limited IPO FAQs