Sati Poly NSE SME IPO review (May apply)

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Review By Dilip Davda on July 10, 2024

•    The company is operating in a highly competitive and fragmented segment of flexi packaging business. 
•    It posted almost static top lines for the last three fiscals with varying bottom lines.
•    Based on FY24 super earnings, the issue appears aggressively priced. 
•    Small paid-up equity post-IPO indicates longer gestation periods. 
•    Well-informed investors may park moderate funds for the medium to long term. 

ABOUT COMPANY:
Sati Poly Plast Ltd. (SPPL) is an ISO Certified Company engaged in the manufacturing of flexible packaging material which is multifunctional and caters to the packaging requirements of various industries. It provides end-to-end solution for various flexible packaging needs. Till year 2015, SPPL was engaged in the business of trading of flexible packaging material. From 2017, the Company commenced the manufacturing of flexible packaging material. It has set up two manufacturing units, of which "Plant 1" is situated at C44, Phase II, Gautam Budh Nagar - Noida-201305 with an installed capacity of 540 tons per month and "Plant 2" is situated at Plot No. 85 Udhyog Kendra, Noida -201306 with an installed capacity of 540 tons per month. 

The Company has been consistently expanding its business operations by increasing its installed capacity from 250 tonnes per month to 400 tonnes per month in 2018 and to 500 tonnes per month in 2019. Its range of packaging solutions span a variety of products in the food and beverage category, including salty snacks, snack bars, dry fruits, confectionery and dry foods. It utilizes the advanced equipment available and continually invests to maintain the quality of product, process efficiency and the superior service. Its products are crafted out of an extensive range of industry approved materials such as polyethylene terephthalate, Biaxially-oriented polypropylene, polythene, cast polypropylene, foil, paper, bio-degradable films, etc. 

Since, flexible packaging material predominantly consists of plastic as a major raw material, SPPL aims to manufacture products sustainably by aiming towards "Reuse, Recycle and Upcycle". One of the key ways it achieves this is by recycling the waste generated in its flexible packaging production process. This waste is processed and transformed into recycled plastic material, which is sold in the market for use in various applications. By doing so, it not only reduces the amount of waste sent to landfills but also contribute to the circular economy by reintroducing recycled materials into the production chain. 

Currently it is working with Pidilite, Adani Wilmar, JVL and have also started vacuum bags for cashews. Vacuum bags are pouches or bags made from materials that can withstand vacuum sealing. They are used to package various edible products like Nuts, Pulses etc. (herein after referred to as the Products) while removing air from the package to extend the shelf life of the Products and preserve their freshness. Vacuum bags are used to package the Products for retail sale or storage. The vacuum sealing process helps to prevent oxidation and moisture absorption, which can lead to spoilage. By removing air from the package, the Products stay fresher for longer periods, maintaining their quality and flavour.

Flexible packaging refers to a type of packaging material that is made from non-rigid materials such as plastic, paper, or aluminum foil to create pouches, bags, and other pliable product containers. Flexible packages are particularly useful in industries that require versatile packaging, such as the food and beverage, personal care, and pharmaceutical industries. Flexible packaging offers several advantages, including its ability to conform to the shape of the product, its lightweight nature, and its ability to provide barrier properties to protect the contents from moisture, oxygen, and other external factors.
Additionally, flexible packaging is often considered more sustainable compared to rigid packaging, as it typically requires fewer resources to produce and transport. As of March 31, 2024, it had 135 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 1335000 equity shares of Rs. 10 each to mobilize Rs. 17.36 cr. at the upper cap. It has announced a price band of Rs. 123 - Rs. 130 per share. The issue opens for subscription on July 12, 2024, and will close on July 16, 2024. The minimum application to be made is for 1000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.99% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 11.00 cr. for working capital, and the rest for general corporate purposes. 

The issue is solely lead managed by Beeline Capital Advisors Pvt. Ltd., and Link Intime India Pvt. Ltd. is the registrar to the issue. Beeline Group's Spread X Securities Pvt. Ltd. is the market maker for the company. 

Having issued initial equity shares at par value, the company issued further equity shares at a price of Rs. 120.00 (on the basis of Rs. 10 FV) in October 2023, and January 2024. It has also issued bonus shares in the ratio of 2 for 1 in August 2023. The average cost of acquisition of shares by the promoters is Rs. NIL, Rs. 0.80, Rs. 0.97, Rs. 1.35, and Rs. 3.33 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 3.61 cr. will stand enhanced to Rs. 4.95 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 64.31 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 175.22 cr. / Rs. 0.28 cr. (FY22), Rs. 190.97 cr. / Rs. 3.09 cr. (FY23), and Rs. 179.41 cr. / Rs. 3.29 cr. (FY24). The company inconsistency in its top lines for the reported periods, but posted higher bottom lines for the last two fiscals. 

For the last three fiscals, it has reported an average EPS of Rs. 6.75, and an average RoNW of 26.73%. The issue is priced at a P/BV of 3.58 based on its NAV of Rs. 36.29 as of March 31, 2024, but post-IPO NAV data is missing from the IPO price-band ad.

If we attribute FY24 earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 19.58, and based on FY23 earnings, the P/E stands at 20.83. Based on super earnings for FY24, the issue appears aggressively priced. 

For the reported periods, the company has posted PAT margins of 0.16% (FY22), 1.62% (FY23), 1.83% (FY24), and RoCE margins of 9.21%, 22.63%, 20.45% 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 Sabar Flex, and Uma as of July 10, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 43rd mandate from Beeline Capital in the last three fiscals (including the ongoing one), out of the last 10 listings, all listed with premiums ranging from 7.14% to 386.67% on the date of listing.

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