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Review By Dilip Davda on June 21, 2019
• SBC has diverse activities and majorly catering to domestic markets.
• Posted sudden boost in earnings in pre-IPO years.
• Offer documents do not reflect the diluted impact of equity in re-stated accounts.
• The Issue is priced aggressively on the basis of robust earnings in the last two fiscals.
ABOUT COMPANY:
SBC Exports Ltd. (SBC) that was initially engaged in the trading of handmade carpets, cushion covers, cotton quilts, bedspreads etc off late diversified into trading of hosiery textile fabrics and garments, information technology, manpower supply services, as well as Tour and Travels services. In the year 2017, it set up its own manufacturing unit for hosiery fabrics/garments. It sells its products under brand names such as 'SBC Desing+', 'SBC F-Route', 'IEDEE'.
ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 5.10 cr.), general corpus funds (Rs. 0.96 cr.), SBC is coming out with a maiden IPO of 2982000 equity shares of Rs. 10 each at a fixed price of Rs. 22 per share to mobilize Rs. 6.56 cr. The issue opens for subscription on 24.06.19 and will close on 26.06.19. Minimum application is to be made for 6000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. Issue constitutes 28.18% of the post issue paid up capital of the company. SBC is spending Rs. 0.50 cr. for this issue process.
The issue is solely lead managed by Navigant Corporate Advisors Ltd. while Bigshare Services Pvt. Ltd. is the registrar to the issue. Nikunj Stock Broker Ltd. is acting as Market Maker for this issue.
SBC has issued entire equity at par so far. The average cost of acquisition of shares by the promoters is Rs. 10 per share.
Post issue, SBC's current paid up equity capital of Rs. 7.60 cr. will stand enhanced to Rs. 10.52 cr.
FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, SBC has posted turnover/net profits of Rs. 21.16 cr. / Rs. 0.07 cr. (FY16), Rs. 28.69 cr. / Rs. 0.33 cr. (FY17) and Rs. 64.21 cr. / Rs. 0.83 cr. (FY18). For the 9MFY19 it has earned net profits of Rs. 0.69 cr. on a turnover of Rs. 58.52 cr. SBC's major sales happening in domestic markets with cut-throat competition and pressure on margins. The sudden spurt in the top and bottom lines in pre-IPO years raises concern.
As per offer documents, the company is showing the last three years' average EPS and RoNW on the basis of paid-up equity capital of Rs. 0.10 cr. for FY16, FY17 and FY18 that stands at Rs.53.53 and 52.44% respectively. In fact, it has not reflected (or considered) its current paid-up equity of Rs. 7.60 cr. (as on 31.12.18) for the said data and hence it does not reflect the true status. Even for P/E and NAV is also calculated on the same basis. (It shows P/E of 8.46 and NAV of Rs. 45.38 as at 31.12.2018)
If we annualize latest earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 25, thus the issue is priced aggressively.
COMPARISION WITH LISTED PEERS:
AS per offer documents, it has shown Monte Carlo, Vardhman Textiles, Page Ind. And Jet Knitwear as its listed peers that are currently trading at a P/Es of around 10, 9, 59 and 8 (as on 21.06.19). They are strictly not comparable on an apple to apple basis.
MERCHANT BANKER'S TRACK RECORDS:
On merchant banker's front, this is the 16th mandate from its stable in the last four fiscals. Out of last 10 listings, 2 opened at discount and the rest with a premium ranging from 1.25%to 20% on the day of listing.
Although the company has diverse activities, its major revenue comes from domestic markets. Issue pricing is aggressive. Peers comparison is grossly misleading. Investors may skip this issue.
Review By Dilip Davda on June 21, 2019
DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. My reviews do not cover GMP market and operators game plans. Readers must consult a qualified financial advisor before making any actual investment decisions, based the on information published here. With entry barriers, SEBI wants only well-informed investors to participate in such offers. With crazy listings in the recent past, SME IPOs drew the attention of investors across the board and lead to seer madness. However, as SME issues have entry barriers and continued low preference from the broking community, any reader taking decisions based on any information published here does so entirely at their own risk. The above information is based on information available as of date coupled with market perceptions. The Author has no plans to invest in this offer.
About Dilip Davda
Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.
Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.
(Dilip Davda -SEBI registered Research Analyst-Mumbai,
Registration no. INH000003127 (Perpetual)
Email id: dilip_davda@rediffmail.com ).
The initial public offer (IPO) of SBC Exports Limited offers an early investment opportunity in SBC Exports Limited. A stock market investor can buy SBC Exports IPO shares by applying in IPO before SBC Exports Limited shares get listed at the stock exchanges. An investor could invest in SBC Exports IPO for short term listing gain or a long term.
Read the SBC Exports IPO recommendations by the leading analyst and leading stock brokers.
SBC Exports IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the SBC Exports IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.
Our recommendation for SBC Exports IPO is to avoid.
As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to avoid the SBC Exports IPO.
The SBC Exports IPO allotment status will be available on or around July 1, 2019. The allotted shares will be credited in demat account by July 3, 2019. Visit SBC Exports IPO allotment status to check.
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