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Review By Dilip Davda on June 23, 2023
• PRL is engaged in manufacturing and marketing various types of rubber belts.
• Based on its financial performance so far, the issue appears fully priced.
• It operates in a highly competitive and fragmented segment.
• The small equity base post IPO indicates longer gestation for migration to the mainboard.
• Well-informed/cash surplus/risk seekers may consider investing in this fully priced IPO.
ABOUT COMPANY:
Pentagon Rubber Ltd. (PRL) is engaged in manufacturing Rubber Conveyor belts, Transmission Belts, Rubber Sheets and Elevator Belts. Its products are ever-evolving & continually perfected using the latest developments in raw materials. PRL's competence and expertise to Business-to-Business partners in a number of areas. This is carried from its material handling and ore transportation systems across to complete system integration and offers its products which meet the quality benchmark of various industries.
The company has set up its manufacturing plant and managed under the able guidance of a pool of seasoned professionals, the organization has installed the best quality infrastructure and facilities. With a wide-spread network of stockiest and importers, it has expanded business relations across boundaries having earned a good clientele in many countries. As claimed by the management, the company has installed the longest conveyor belting press in India that can produce a 21-meter-long belt in a single stroke. It has an overall capacity of manufacturing 300 square kilometres of conveyor rubber belts per year. As of December 31, 2022, it had 63 employees on its payroll.
ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 2310000 equity shares of Rs. 10 each via book building route to mobilize Rs. 16.17 cr. at the upper cap. It has announced a price band of Rs. 65 - Rs. 70 per share. The issue opens for subscription on June 26, 2023, and will close on June 30, 2023. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 29.96% of the post-IPO paid-up capital of the company. Post reservation of 5.02% for market maker, the company has allocated not more than 50% for QIBs, not less than 15% for NIIs, and not less than 35% for Retail investors.
From the net proceeds of the IPO funds, it will utilize Rs. 12.00 cr. for working capital and the rest for general corporate purposes.
Beeline Capital Advisors Pvt. Ltd. is the sole lead manager. Link Intime India Pvt. Ltd. is the registrar of the issue. Sunflower Broking Pvt. Ltd. is the market maker for the company.
The company has issued its entire equity capital at a par value so far. It has also issued bonus shares in the ratio of 7 for 20 in November 2022. The average cost of acquisition of shares by the promoters is Rs. 1.55, Rs. 1.72, Rs. 2.10, and Rs. 2.46 per share.
Post-IPO, PRL's current paid-up equity capital of Rs.5.40 cr. will stand enhanced to Rs. 7.71 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 53.97 cr.
FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, PRL has posted a turnover/net profit of Rs. 19.39 cr. / Rs. 0.94 cr. (FY20), Rs.23.20 cr. / Rs. 1.10 cr. (FY21), and Rs. 35.12 cr. / Rs. 3.09 cr. (FY22). For 9M of FY23 ended on December 31, 2022, it earned a net profit of Rs. 2.16 cr. on a turnover of Rs.29.98 cr. The sudden jump in its bottom lines from FY22 onward raises eyebrows.
For the last three fiscals, PRL has reported an average EPS of Rs. 3.83 and an average RoNW of 54.34%. The issue is priced at a P/BV of 4.91 based on its NAV of Rs. 14.26 as of December 31, 2022, and at a P/BV of 2.26 based on its post-IPO NAV of Rs. 30.96 per share (at the upper cap).
If we annualize FY23 earnings and attribute it to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of around 18.76. Thus the issue is fully priced discounting all near-term positives.
DIVIDEND POLICY:
The company has not declared any dividends in the last five years. 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, the company has shown Somi Conveyor, and International Conveyors as their listed peers. They are currently trading at a P/E of 18.68, and 15.39 (as of June 23, 2023). However, they are not truly comparable on an apple-to-apple basis.
MERCHANT BANKER'S TRACK RECORD:
The merchant banker associated with the issue (Beeline Capital) has handled 13 public issues in the past three years, out of which 2 issues closed below the issue price on the listing date.
Review By Dilip Davda on June 23, 2023
DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. My reviews do not cover GMP market and operators game plans. Readers must consult a qualified financial advisor before making any actual investment decisions, based the on information published here. With entry barriers, SEBI wants only well-informed investors to participate in such offers. With crazy listings in the recent past, SME IPOs drew the attention of investors across the board and lead to seer madness. However, as SME issues have entry barriers and continued low preference from the broking community, any reader taking decisions based on any information published here does so entirely at their own risk. The above information is based on information available as of date coupled with market perceptions. The Author has no plans to invest in this offer.
About Dilip Davda
Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.
Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.
(Dilip Davda -SEBI registered Research Analyst-Mumbai,
Registration no. INH000003127 (Perpetual)
Email id: dilip_davda@rediffmail.com ).
The initial public offer (IPO) of Pentagon Rubber Limited offers an early investment opportunity in Pentagon Rubber Limited. A stock market investor can buy Pentagon Rubber IPO shares by applying in IPO before Pentagon Rubber Limited shares get listed at the stock exchanges. An investor could invest in Pentagon Rubber IPO for short term listing gain or a long term.
Read the Pentagon Rubber IPO recommendations by the leading analyst and leading stock brokers.
Pentagon Rubber IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the Pentagon Rubber IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.
Our recommendation for Pentagon Rubber IPO is to subscribe for long term.
As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to subscribe for long term to the Pentagon Rubber IPO.
The Pentagon Rubber IPO allotment status will be available on or around July 5, 2023. The allotted shares will be credited in demat account by July 7, 2023. Visit Pentagon Rubber IPO allotment status to check.
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