Premium Plast NSE SME IPO review (May apply)

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Review By Dilip Davda on October 19, 2024

•    The company is engaged in manufacturing and marketing of automotive plastic components used for exteriors or interiors. 
•    While it posted steady growth in its top lines, sudden boost in net margins from FY24 onwards raises eyebrows and concern over its sustainability going forward.
•    The company operates in a highly competitive and fragmented segment.
•    Based on its super earnings of FY24 and annualized super earnings for FY25, the issue appears fully priced.
•    It is largely dependent only on 1 major customer that contributes over 81% in its revenues.
•    Well-informed/cash surplus investors may park moderate fund for long term. 

ABOUT COMPANY:
Premium Plast Ltd. (PPL) is a tier-1 (tier-1 companies are companies that directly supply to original equipment manufacturers ("OEMs")) automotive component group. It designs, manufactures and supplies, exterior plastic components, interior cabin components, under the hood components to commercial vehicle OEMs directly. It is an IATF-16949, ISO 9001:2015, and ISO 14001:2004 specialised plastic injection and blow mould components manufacturer. 

PPL manufactures a wide variety of injection and blow moulded plastic articles for a broad group of industries and applications. Its products broadly include automotive parts, plastic industrial components and packaging components, which cater to a diverse range of industries. The company specialises in manufacturing of automotive parts and have manufactured over 600 components across three facilities strategically located in India. It uses blow moulding and injection moulding technologies for manufacturing products. As of September 30, 2024, it had overall 122 employees on its payroll.

Automotive components have the lion share (over 80%) in its top line. And VE Commercial Vehicles has over 81% contribution among its top 10 customers. Thus it is playing with the high risk of dependency only on one major client. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 5346000 equity shares of Rs. 10 each to mobilize Rs. 26.20 cr. (at the upper cap). The company has announced a price band of Rs. 46 - Rs. 49 per share. The issue opens for subscription on October 21, 2024, and will close on October 23, 2024. The minimum number of shares to be applied is for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 27.99% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, the company will utilize Rs. 16.55 cr. for expansion of Pithampur facility, Rs. 1.04 cr. for rooftop solar grid power, Rs. 2.23 cr. for prepayment/repayment of certain borrowings, and the rest for general corporate purposes. 

After reserving 270000 shares for the market maker, the company has allocated not more than 10.04% for QIBs, not less than 44.98% for HNIs and not less than 44.98% for Retail investors.

The IPO is solely lead managed by Khandwala Securities Ltd., and Bigshare Services Pvt. Ltd. is the registrar to the issue. Asnani Stock Broker Pvt. 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 Asnani Stock Broker.

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 15 - Rs. 30 between February 2013 and June 2024. It has also issued bonus shares in the ratio of 2 for 1 in September 2017, and 1 for 1 in June 2024. The average cost of acquisition of shares by the promoters is Rs. 4.43, and Rs. 7.11 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 13.75 cr. will stand enhanced to Rs. 19.10 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 93.58 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 31.05 cr. / Rs. 0.78 cr. (FY22), Rs. 44.05 cr. / Rs. 1.59 cr. (FY23), and Rs. 46.71 cr. / Rs. 4.78 cr. (FY24). For Q1 of FY25 ended on June 30, 2024, it earned a net profit of Rs. 1.41 cr. on a total income of Rs. 12.13 cr. Thus the company has reported steady growth in its top and bottom lines for the reported periods. However, sudden boost in its bottom lines in pre-IPO periods from FY24 onwards raises eyebrows and concern over its sustainability going forward. It is operating in a highly competitive and fragmented segment. 

For the last three fiscals, the company has reported an average EPS of Rs. 6.40 and an average RoNW of 20.24%. The issue is priced at a P/BV of 3.04 based on its NAV of Rs. 16.10 as of June 30, 2024, but the offer document and IPO price band ad is missing its post-IPO NAV data.

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 16.55, and based on FY24 earnings, the P/E stands at 19.6. The issue relatively appears fully priced. It is operating in a highly competitive and fragmented segment.

For the reported periods, the company has posted PAT margins of 2.50% (FY22), 3.62 % (FY23), 10.22% (FY24), 11.64% (Q1-FY25), and RoCE margins of 6.76%, 13.95%, 28.01%, 7.88%, 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 Varroc Engineering, and Uno Minda, as their listed peers. It is trading at a P/E of 16.6 and 61.7 (as of October 18, 2024). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 7th mandate from Khandwala Securities in the last two fiscals (including the ongoing one).  Out of the last 6 listings, 1 opened at discount, 1 at par, and the rest opened with a premiums ranging from 7.35% to 90% on the date of listing.

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