Rajeshwari Cans BSE SME IPO review (May apply)

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Review By Dilip Davda on March 27, 2021

•    RCL is engaged in the manufacturing of small size in packaging containers.
•    The company has posted slow and steady growth in top and bottom lines.
•    Based on the average earnings of the last three fiscals, the issue is fully priced.
•    Based on pandemic year's annualized earnings, it is aggressively priced.

PREFACE:
The company filed draft offer documents in September 2020 for the issue of 2004000 equity shares at Rs. 40 each to mobilize Rs. 8.02 cr. Surprisingly, it has revised the issue size and the price as per final prospects. Now the company is issuing 2016000 equity shares at Rs. 20 each to mobilize Rs.4.03 cr. Thus while the equity portion is raised marginally, but price reduced by half. Though this augurs well for the new investors, the million-dollar question arises as to why was such a nose-dive in IPO pricing? Perhaps promoters are desperate for this IPO, it appears.


ABOUT COMPANY:
Rajeshwari Cans Ltd. (RCL) is engaged in the business of manufacturing round printed tin containers of various sizes which are used as packing material. It supplies tin containers to customers engaged in the business of tobacco manufacturing and paint manufacturing. The Company also performs printing work on tin sheets supplied by its customers. As of the date of this Prospectus, the Company supplies the majority of its product to a tobacco manufacturing company. The Promoters have cordial relation with the client which has helped the Company to fetch uninterrupted order.

At present IT IS manufacturing the printed round tin containers of different capacity ranging from 50 gm to 500 gm for a single customer to be used for packing tobacco. For Expansion, the Company purchased the premises at Shree Ganesh Industrial Estate for manufacturing printed round tin containers of 50 gm which is used by snuff manufacturers. The Company is enhancing its product range as well as its client base so the dependency on a single customer for sale can be avoided.

Apart from Manufacturing the Tins, the company also carry out colour printing on the sheets as per specifications provided by the customers. The Company also does the print job on the empty tins as per the specifications provided by the customers. As of December 31, 2020, the company has 70 employees. RCL's average capacity utilization is in the range of 74% of the installed capacities. Procedures for the transfer of all the properties is yet to be completed.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 2.90 cr.) and general corpus fund needs (Rs. 0.73 cr.), RCL is coming out with a maiden IPO of 2016000 equity share of Rs. 10 each at a fixed price of Rs. 20 per share. The company mulls mobilizing Rs. 4.03 cr. The issue opens for subscription on March 31, 2021, and will close on April 06, 2021. Minimum application is to be made for 6000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 38.43% of the post issue paid-up capital of the company. The company is spending Rs. 0.40 cr., for this issue process.

The issue is solely lead managed by Fedex Securities Pvt. Ltd., and Bigshare Services Pvt. Ltd. Is the registrar to the issue. Beeline Broking Ltd. is working as a Market Maker for this IPO.  

The company has converted entire equity issues so far at NIL value. The average cost of acquisition of shares by the promoters is Rs. NIL per share.

Post issue, RCL's current paid-up equity capital of Rs. 3.23 cr., will stand enhanced to Rs. 5.25 cr. With the IPO price, the company is looking for a market cap of Rs. 10.49 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, RCL has posted turnover/net profits of Rs. 18.50 cr. / Rs. 0.11 cr. (FY18), Rs. 21.32 cr. / Rs. 0.16 cr. (FY19) and Rs. 22.10 cr. / Rs. 0.19 cr. (FY20). For the first nine months ended on December 31, 2020, of FY21 it has earned a net profit of Rs. 0.13 cr. On a turnover of Rs. 12.85 cr. Following the pandemic, it has suffered a minor setback for the current fiscal as it indicates.

For the last three fiscals, it has posted an average EPS of Rs. 0.87 and an average RoNW of 7.74%. The issue is priced at a P/BV of 1.75 based on its NAV as of Rs. 11.46 as of December 31, 2020, and at a P/BV of 1.36 based on its post-issue NAV of Rs. 14.74.

If we annualize the latest earnings and attribute it to the post-issue equity capital, then the asking price is at a P/E of around 62 making it an aggressively priced issue. Based on the last three fiscals average earnings it is priced at a P/E of 23 indicating a fully priced offer.

DIVIDEND POLICY:
The company has not paid any dividend since incorporation. It will follow the prudent dividend policy post listing based on its financial performance and future prospects.

COMPARISION WITH LISTED PEERS:
As per offer documents, RCL has shown Tinplate Co. of India, Hindustan Tin Works, Kaira Can, Shetron as its listed peers. They are currently trading at a P/E of around 23.3, 5.96, 19.02 and 00 (as of March 26, 2021). However, they are not truly comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORDS:
This is the 11th mandate from its stable in the last three fiscals (including the ongoing one). Out of the last 9 listings, 1 opened at discount, 2 issues opened at par and the rest with a premium ranging from 0.16% to 56.52%. Thus it has an average track record.

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