Ramdevbaba Solvent NSE SME IPO review (Apply)

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Review By Dilip Davda on April 8, 2024

•    The company is primarily in rice bran oil and related products manufacturing
•    It is now venturing into ethanol blending via its subsidiary.
•    It is expanding capacities and adding de-oiling facility that will boost its margins going forward.
•    Based on FY23/FY24 earnings, the issue appears fully priced. 
•    Well-informed investors may park funds for the medium to long term rewards. 

PREFACE:
RSL is primarily into rice bran oil and related products manufacturing and marketing. It is adding de-oiling facility and venturing into ethanol blending which is the sunrise industry. Yes, though its name includes Ramdevbaba, it has no connection with Patanjali group or any association with Yoga Guru Ramdeo Baba. 

ABOUT COMPANY:
Ramdevbaba Solvent Ltd. (RSL) is in the business of manufacturing, distribution, marketing and selling of Physically Refined Rice Bran Oil ("Rice Bran Oil"). It manufactured and sells Rice Bran Oil to FMCG companies like Mother Dairy Fruit & Vegetable Private Limited, Marico Limited and Empire Spices and Foods Ltd. The company also manufactures, markets and sells Rice Bran Oil under its own brands "Tulsi" and "Sehat" through thirty-eight (38) distributors who in turn sell to various retailers across Maharashtra. 

Rice bran oil is the oil extracted from the hard outer brown layer of rice called 'bran'. It is well known for its high smoke point of 232 °C i.e. 450 °F and mild flavour, making it fit for high-temperature cooking methods such as stir-frying and deep-frying. It has an ideal balance of Polyunsaturated Fats (PUFA) and Monounsaturated Fats (MUFA), in almost a 1:1 ratio. Since rice bran oil is made from bran, it is rich in Vitamin E, an antioxidant.

The company also produces De-Oiled Rice Bran (DORB), which is a by-product in the extraction of Rice Bran Oil and sells the same as cattle feed, poultry feed and fish feed in the States of Maharashtra, Goa, Gujarat, Madhya Pradesh, Andhra Pradesh, Telangana, Karnataka, Kerala and Tamil Nadu. Other by-products such as fatty acid, lecithin, gums, spent earth and wax are sold in the open market. As of the date of filing this offer document, it had 491 employees on its payroll. 

RSL intends to set up corn de-oiling manufacturing facility, adjoining its existing manufacturing unit at Brahmapuri, which involves crushing and processing of grains like corn using a process called dry-milling. The plant proposed to be installed is based on "Zero Liquid DisSilo), Dry Milling, Solvent Extraction, Storage of Crude Oil, Refining & Storage of Refined Oil & Packaging based on the DRI-CORN Technology.

The de-oiled corn cake obtained from this process along with de-oiled rice bran (DORB) from its existing manufacturing facilities will be supplied to RBS Renewables Private Limited, an Associate company, which is setting up Ethanol manufacturing unit adjoining to its existing Brahmapuri unit. The Company has a thirty percent (30%) stake in this Associate company. RSL will be entering into an arrangement with RBS Renewables Private Limited to supply the de-oiled corn cake and de-oiled rice bran (DORB).

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 5913600 equity shares of Rs. 10 each to mobilize Rs. 50.27 cr. at the upper cap. It has announced a price band of Rs. 80 - Rs. 85 per share. The issue opens for subscription on April 15, 2024, and will close on April 18, 2024. The minimum application to be made is for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.73% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 18.81 cr. for setting up of new manufacturing facility, Rs. 8.42 cr. for repayment of certain outstanding borrowings, Rs. 12.00 cr. for working capital, and the rest for general corporate purposes. 

The issue is solely lead managed by Choice Capital Advisors Pvt. Ltd., and Bigshare Services Pvt. Ltd. is the registrar of the issue. Choice group's Choice Equity Broking Pvt. Ltd. is the market maker for the company. 

Having issued initial equity capital at par, the company issued further equity capital in the price range of Rs. 20.00 - Rs. 130.00 per share (on the basis of FV of Rs. 10) between March 2014 and November 2023. It has also issued bonus shares in the ratio of 2 for 1 in October 2023. The average cost of acquisition of shares by the promoters is Rs. 3.33, Rs. 4.90, Rs. 5.07, and Rs. 6.01 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 16.21 cr. will stand enhanced to Rs. 22.13 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 188.07 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total revenue/net profit of Rs. 427.17 cr. / Rs. 6.17 cr. (FY21), Rs. 585.26 cr. / Rs. 6.59 cr. (FY22), and Rs. cr. / Rs. 13.00 cr. (FY23). For 9M of FY24 ended on December 31, 2023, it earned a net profit of Rs. 8.29 on a total revenue of Rs. 465.70 cr. This indicates that the company is operating in a high volume/low margin segment. 

For the last three fiscals, it has reported an average EPS of Rs. 7.07, and an average RONW of 26.69%. The issue is priced at a P/BV of 2.45 based on its NAV of Rs. 34.76 as of March 31, 2023, and at a P/BV of 3.74 based on its post-IPO NAV of Rs. 22.72 per share (at the upper cap). However, the NAV data as of December 31, 2023 is missing in the offer document. 

According to the management, while its FY24 performance may remain same as FY23 due to liberal import of edible oils ahead of elections and may keep a pressure on margin. As the company is adding de-oiling facility and venturing into ethanol blending through its subsidiary, it will boost its top and bottom lines going forward. 

If we attribute annualized FY24 earnings to its post-IPO fully diluted paid-p capital, then the asking price is at a P/E of 17. Based on FY23 earnings, the issue is at a P/E of 14.46. Thus the issue appears fully priced. 

For the reported periods, the company has posted PAT margins of 1.46% (FY21), 1.13% (FY22), 1.86% (FY23), 1.79% (9M-FY24), and RoCE margins of 16.50%, 14.07%, 15.26%, 10.76% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown BCL Ind., Gokul Refoils, Kriti Nutri, and Shri Venkatesh Refineries as their listed peers. They are trading at a P/E of 18.1, 178, 11.9, and 16.8 (as of April 05, 2024). However, they are not comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 2nd mandate from Choice Capital in the last two fiscals (including the ongoing one), out of which the only one listing opened at a premium of 66.67% on the listing day.

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