Shubhshree Bio NSE SME IPO review (May apply)

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Review By Dilip Davda on September 7, 2024

•    The company is in the business of manufacturing & supplying of biomass fuels primarily in the northern region.
•    The company marked spectacular growth in its top and bottom lines for the reported periods.
•    Small post-IPO equity base indicates longer gestation for migration.
•    Based on FY24 earnings, the issue relatively appears fully priced. 
•    Well-informed investors may park funds for long term.

ABOUT COMPANY:
Shubhshree Biofuels Energy Ltd. (SBEL) is engaged in the business of manufacturing & supplying of biomass fuels, which includes biomass pellets and briquettes. These biomass fuels are an alternative source of energy which are basically used in commercial and industrial heating, cooking fuel, industrial burning and electricity generation, as an alternative to fossil fuels like coal, firewood, lignite, Agri-waste etc. 

The briquettes are majorly used for industrial purposes like running boilers etc. and the pellets are majorly used as cooking fuel or commercial purposes. The company is currently selling these pellets and briquettes to customers who are engaged in the business of recycling material, textile processing, pharmaceutical, metal etc. These Biomass pellets and briquettes are built from recycled green waste, producing less greenhouse gas emission. The main raw material used in the manufacturing of biomass fuels include Agri-waste, saw dust, farm waste etc. These raw materials are procured from the farmers and nearby sources either directly or through dealers and brokers. Apart, from the biomass manufactured by the company, it is also involved in the supplying of the biomass pellets and briquettes, which are procured from different vendors who are engaged in the manufacturing of these biomass fuels.

The company was undertaking the business of manufacturing and supplying of building and construction material like fly ash bricks etc. Later, during December 2021, the company discontinued the business of fly ash bricks and foray into the business of supplying of biomass pellets and biomass briquettes. Prior to the supplying of biomass pellets and biomass briquettes the company was undertaking supply of saw dust etc. which are used as raw material for manufacturing of biomass pellets and biomass briquettes. Looking at the market response and opportunity in this business, it established manufacturing facility from October 2023, where it has installed 3 briquettes cum pelleting machines, one of which is owned by it and the rest 2 are taken on rent along with the premises, having a combined capacity of 132 tonnes per day. 

Biomass pellet or briquettes are cylindrical and condensed form of organic material derived from various renewable sources. These pellets serve as an ttes, the Ministry of Power has mandated that all coal based thermal power plants of power generation utilities with bowl mills, shall on annual basis mandatorily use minimum 5% blend of biomass pellets made, primarily, of agro residue along with coal with effect from FY 2024-25. The obligation shall increase to 7% with effect from FY 2025-26. 

SBEL currently sells majority of products in the Northern States of India among which especially Haryana, Uttar Pradesh, Rajasthan and NCR region being the highest contributor to its revenue from operations. As of March 31, 2024, it had 26 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 1392000 equity shares of Rs. 10 each to mobilize Rs. 16.56 cr. at the upper cap. It has announced a price band of Rs. 113 - Rs. 119 per share. The issue opens for subscription on September 09, 2024, and will close on September 11, 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 26.55% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 9.00 cr. for working capital, Rs. 2.13 cr. for capex on additional plant and machinery, and the rest for general corporate purposes. 

The issue is solely lead managed by Hem Securities Ltd., and Bigshare Services Pvt. Ltd. is the registrar to the issue. HEM group's Hem Finlease 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. 125 in November 2023. It has also issued bonus shares in the ratio of 34 for 1 in January 2024. The average cost of acquisition of shares by the promoters is Rs. 1.92, Rs. 3.15, Rs.3.56, and Rs. 3.57 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 3.85 cr. will stand enhanced to Rs. 5.24 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 62.38 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 7.92 cr. / Rs. 0.28 cr. (FY22), Rs. 59.71 cr. / Rs. 2.42 cr. (FY23), Rs. 94.88 cr. / Rs. 3.30 cr. (FY24). 

For the last three fiscals, it has reported an average EPS of Rs. 6.53, and an average RoNW of 87.10%. The issue is priced at a P/BV of 6.41 based on its NAV of Rs. 18.56 as of March 31, 2024, and at a P/BV of 2.63 based on its post-IPO NAV of Rs. 45.17 per share (at the upper cap). 

If we attribute FY24 earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 18.92. The issue relatively appears fully priced.

For the reported periods, the company has posted PAT margins of 3.47% (FY22), 4.14% (FY23), 3.50% (FY24), and RoCE margins of 50.71%, 94.32%, 61.67% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends since inception. It has adopted a dividend policy in March 2024, based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has no listed peers to compare with.

MERCHANT BANKER'S TRACK RECORD:
This is the 54th mandate from Hem Securities in the last three fiscals (including the ongoing one), out of the last 10 listings, all listed with premiums ranging from 16.35% to 165.22% on the date of listing.

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