Phoenix Overseas NSE SME IPO review (May apply)

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Review By Dilip Davda on September 16, 2024

•    The company is engaged in trading and marketing of variety of agri products and commodities.
•    It does around 90% exports to Bangladesh.
•    It posted growth in top lines, but bottom lines marked inconsistency.
•    Based on FY24 earnings, the issue appears fully priced.
•    Well-informed investors may park moderate fund for long term. 

ABOUT COMPANY:
Phoenix Overseas Ltd. (POL) is engaged into trading and marketing of animal feeds and agricultural produce and commodities such as corn, oil cakes, spices like dry red chilies, coriander, cumin seeds, food grains like rice, wheat, corn, sorghum and tea, pulses and agricultural feed like soya bean meal and rice bran de-oiled cake. It has been engaged in import lentils, black urad dal and tur dal in India in bulk quantities. Its major exports are to Bangladesh among other Asian Countries. It is B2B traders, dealing majorly in corn / maize and oil cakes. The company maintains stocks and distribute them to different institutional parties like manufacturers, exporters, etc. in bulk quantities. The Company has developed business strategy to switch over exports/imports from one commodity to another with change in demand or inconsistency in pricing for any commodity during any season.

POL is also engaged in manufacturing of bags for men and women made of jute, cotton, canvas, and leather as well as various other fashion accessories for buyers based in European Countries like France, Italy, Germany, UAE and also in Australia. Company's manufacturing facility is situated at Sodhpur, Kolkata. It is also engaged in manufacturing of purse and wallets along with other shopping and fashion bags for our clients.

The Company is also engaged in food preservation business after acquisition of a multipurpose cold storage as well as potato storage facility having a combined capacity of around 11,827 MT, by virtue of amalgamation of Phoenix Cold Storage Private Limited with the Company w.e.f. 01.04.2009. The division offers storage and preservation solutions for all types of food products ranging from apples, oranges, carrots, potatoes, chili, ginger, eggs, fish, ice creams, sweets. Further, Company also has a warehouse with the capacity of more than 10,000 MT for storage of corn, oil cakes and other commodities situated at Malda, near the Indo-Bangladesh Border.

It is recognized as Three Star Export house by the Ministry of Commerce and Industry, Govt. of India on October 01, 2023 and this recognition is valid for a period of 5 (Five) years. The group has always believed strongly in the concept of collaborative growth which leads to a business conglomerate dealing in various sectors, which include export of agricultural produce and commodities, manufacturing/exporting jute bags (www.bagsindia.com), purses, wallets, belts, and maintaining a multipurpose cold storage, with potato cold store. With the commitment to provide quality and competitive pricing, the group is constantly moving up the import export ladder of the global market. As of the date of this offer document, it had 29 employees on its payroll and additional 3 contract workers.

While the company has around 90% exports to Bangladesh, current disturbances may have cascading impact on this company's working. The management has clarified that it suffered a minor setback due to this, but things are now turning normal, and they will make good the shortfalls in coming period. The company largely depends on third party contracts for products it exports.  

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden combo book building route IPO of 5630000 equity shares of Rs. 10 each to mobilize Rs. 36.03 cr. at the upper cap of the price band. It has announced a price band of Rs. 61 - Rs. 64 per share. The issue opens for subscription on September 19, 2024, and will close on September 23, 2024. The issue consists of 4580000 fresh equity shares issue (worth Rs. 29.31 cr. at the upper cap), and an Offer for Sale (OFS) of 1050000 shares (worth Rs. 6.72 cr. at the upper cap). 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 29.10% of the post-IPO paid-up capital of the company. From the net proceeds of the fresh issue, the company will utilize Rs. 10.00 cr. for working capital, Rs. 6.00 cr. for inorganic growth initiatives, and the rest for general corporate purposes.

The company has allocated not more than 15% for QIBs, not less than 42% for HNI Investors, and not less than 43% for Retail investors  

The issue is solely lead managed by Khandwala Securities Ltd.., Cameo Corporate Services Ltd. Is the registrar to the issue. Nikunj Stock Brokers Ltd. Is the market maker for the company. The issue is underwritten to the tune of 15% by Khandwala Securities and up to 85% by Nikunj Stock Brokers.

Having issued initial equity shares at par, the company issued further equity shares in the price range of Rs. 72- Rs. 250 per share between September 2003 and November 2010. It also issued bonus shares in the ratio of 580 for 100 in November 2014, and 2 for 1 in June 2024. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 0.41, Rs. 1.93, Rs. 2.03, Rs. 2.35, Rs. 3.34, Rs. 3.53, and Rs. 15.48 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 14.77 cr. will stand enhanced to Rs. 19.35 cr. Based on the upper cap of IPO price band, the company is looking for a market cap of Rs. 123.82 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total revenue/net profit of Rs. 378.28 cr. / Rs. 3.91 cr. (FY22), Rs. 451.32 cr. / Rs. 3.72 cr. (FY23), and Rs. 549.15 cr. / Rs. 5.38 cr. (FY24).  

For the last three fiscals, it has reported an average EPS of Rs. 3.15 and an average RoNW of 9.61%. The issue is priced at a P/BV of 1.89 based on its NAV of Rs. 33.94 as of March 31, 2024, and at a P/BV of 1.56 based on its post-IPO NAV of Rs. 41.06 per share (at the upper cap).

If we attribute FY24 super earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 23.02. Based on FY23 earnings, the P/E stands at 33.33. Thus the issue relatively appears fully priced discounting all near term positives.

The company reported PAT margins of 1.04% (FY22), 0.82% (FY23), 0.98% (FY24), and RoCE margins of 12.42%, 14.58%, 15.28% for the referred periods, respectively.

DIVIDEND POLICY:
The company has paid dividends of Rs. 0.52 cr. and Rs. 1.08 cr. (including dividend tax), for FY23 and FY24, but is has changed the system of reporting this info. Instead of giving table of dividend declaration on page No. 176, it has covered this info along with financial statements info given from page no. F-1 to F-26 (i.e. page no. 177 onwards) of the offer document.  It will adopt a prudent dividend policy based on its financial performance and future prospects.

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
This is the 6th mandate from Khandwala Securities in the last two fiscals (including the ongoing one). Out of the last 4 listings, all listed at a premiums ranging from 7.35% to 90% on the date of listing. 

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