Sadhav Shipping NSE SME IPO review (Apply)

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Review By Dilip Davda on February 17, 2024

•    SSL is engaged in operating marine assets and related services including logistics.
•    It posted steady growth in its bottom line except for FY22 which marked impact of the Pandemic.
•    Based on FY24 annualized earnings, the issue appears fully priced. 
•    Major port and logistics related services is on the rise, this augurs well for this company.
•    Investors may grab this bet for medium to long term rewards.

ABOUT COMPANY:
Sadhav Shipping Ltd. (SSL) is incorporated with an objective to own and operate marine assets to service ports, coastal logistics and other port maritime related services. Today SSL owns and operates 24 vessels that includes 19 owned vessels and 5 rented vessels, in various sectors of maritime trade in India. 

The company has developed strong customer base in the sector and is providing its services to leading companies which includes ONGC Ltd., Mumbai Port Authority, Paradip Port Authority, Bhabha Atomic Research Centre, Shipping Corporation of India, New Mangalore Port Authority, Deendayal Port Authority (Kandla/Vadinar), Jawaharlal Nehru Port Authority (JNPA), BPCL, Gujarat Police, JSW Ports and more.

With modern Dynamic Positioning offshore fleet and dedicated on board and a shore crew SSL is committed to provide best in class services to its clients. The company was the first to setup and operate India's first Port based Tier 1 Oil Spill Response Facility Centre in Mumbai and are now operating in most of the Major Ports in India. With a sailing team of 200+ officers and crew coupled with effective and experienced shore management; it is witnessing sustainable growth year on year.

According to the management, SSL is one of the few company that has specialized in oil spill response segment and it is turning a game changer. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 4018800 equity shares of Rs. 10 each at a fixed price of Rs. 95 per share to mobilize Rs. 38.18 cr. The issue opens for subscription on February 23, 2024, and will close on February 27, 2024. The minimum application to be made is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 28% of the post-IPO paid-up capital of the company. The company is spending Rs. 2.18 cr. for this IPO and from the net proceeds, it will utilize Rs. 8.00 cr. for repayment/prepayment of certain borrowings, Rs. 15.50 cr. for capex on purchase/acquisition of boats/vessels, Rs. 8.00 cr. for working capital, and Rs. 4.50 cr. for general corporate purposes.  

The issue is solely lead managed by ISK Advisors Pvt. Ltd., and Maashitla Securities Pvt. Ltd. is the registrar of the issue. Sunflower Broking Pvt. Ltd. is the market maker for the company. ISK has underwritten this issue for 94.95% and Sunflower for 5.05%. 

Having issued initial equity capital at par the company has issued further equity shares in the price range of Rs. 63.50 - Rs. 300 between March 2008 and September 2020. It has also given bonus shares in the ratio of 2.5 for 1 in October 2023. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 7.02, Rs. 14.79, and Rs. 31.83 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 10.33 cr. will stand enhanced to Rs. 14.35 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 136.35 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 61.24 cr. / Rs. 3.31 cr. (FY21), Rs. 69.78 cr. / Rs. 3.01 cr. (FY22), and Rs. 78.91 cr. / Rs. 7.75 cr. (FY23). For H1 of FY24 ended on September 30, 2023, it earns a net profit of Rs. 4.07 cr. on a total income of Rs. 33.86 cr. Thus its top and bottom lines posted growth except for FY22 where it marked a setback following the Pandemic impact. 

For the last three fiscals, it has reported an average EPS of Rs. 5.25, and an average RONW of 14.05%. The issue is priced at a P/BV of 2.18 based on its NAV of Rs. 43.58 as of September 30, 2023, and at a P/BV of 1.64 based on its post-IPO NAV of Rs. 57.96 per share.

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 16.76. The issue appears fully priced.

For the reported periods, the company has posted PAT margins of 5.46% (FY21), 4.33% (FY22), 9.97% (FY23), 12.08% (H1-FY24), and RoCE margins of 12.63%, 10.93%, 13.25%, 6.47% 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 Seamec Ltd., Knowledge Marine, and Garware Marine as their listed peers. They are trading at a P/E of 47.3, 35.3, and 300.89 (as of February 16, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 6th mandate from ISK Advisors in the last four fiscals, out of the last 5 listings, all opened at premiums ranging from 1.08% to 47.23% on the date of listing.

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