SPP Polymer 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 HDPE/PP woven and non-woven fabrics & bags.
•    It is also manufacturing PP Multifilament yarn and other packaging solutions.
•    After average performance till FY24, it marked boosted bottom line for Q1 of FY25.
•    Based on FY25 annualized super earnings, the issue relatively appears aggressively priced.
•    Well-informed investors may park moderate funds for long term.

ABOUT COMPANY:
SPP Polymer Ltd. (SPL) is an ISO 9001:2015 certified company engaged in the business of manufacturing of HDPE/PP woven fabric & bags, non-woven fabrics & bags and PP Multifilament yarn. It offers packaging solutions to Business to Business ("B2B") manufacturers catering to different industries such as cements, chemicals, food grains, sugars, polymers, agriculture, and others for the packaging of goods in big quantities. 

The company has manufacturing facility situated at Plot No. 4, Sector-I, IIE SIDCUL, Pantnagar, Udham Singh Nagar, Uttarkhand-263153, India, which is spread over a total land area of 13650 Sq. mts. It has achieved installed capacity of HDPE/PP Woven Fabric and bags 9125 MT and Non-Woven Fabric 3600 MT by incurring Capital expenditure of Rs. 21.11 cr. during F.Y. 22-23. 

Its manufacturing facility employs an extensive and stringent quality control mechanism at each stage of the process to ensure that finished product conforms to the exact requirement of customers. Its infrastructure and team of experts also allow it to provide a comprehensive range to clients as per their needs and requirements. SPL also provides customized solutions as per the specifications detailed by clients. It is also ISO 45001: 2018 and SA 8000:2014 certified occupational health & safety management system and environment management system. As of June 30, 2024, it had 331 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 4150000 equity shares of Rs. 10 each at a fixed price of Rs. 59 per share to mobilize Rs. 24.49 cr. The issue opens for subscription on September 10, 2024, and will close on September 12, 2024. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.96% of the post-IPO paid-up capital of the company. The company is spending Rs. 1.00 cr. for this IPO process, and from the net proceeds, it will utilize Rs. 9.87 cr. for working capital, Rs. 7.75 cr. for repayment of loan, and Rs. 5.87 cr. for general corporate purposes. 

The issue is solely lead managed by Interactive Financial Services Ltd., and KFin Technologies Ltd. is the registrar to the issue. B N Rathi Securities Pvt. Ltd. is the market maker for the company. 

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 20 - Rs. 1414 between March 2006 and November 2022. It has also issued bonus shares in the ratio of 3 for 1 in August 2023. The average cost of acquisition of shares by the promoters is Rs. 2.05, Rs. 5.19, Rs.6.17, and Rs. 20.87 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 11.24 cr. will stand enhanced to Rs. 15.39 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 90.81 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 80.78 cr. / Rs. 0.28 cr. (FY22), Rs. 66.78 cr. / Rs. 0.54 cr. (FY23), Rs. 93.81 cr. / Rs. 0.99 cr. (FY24). For Q1 of FY25 ended on June 30, 2024, it earned a net profit of Rs. 0.91 cr. on a total income of Rs. 28.96 cr. The sudden boost in its bottom line for Q1 raised eyebrows and concern over its sustainability going forward.

For the last three fiscals, it has reported an average EPS of Rs. 1.30, and an average RoNW of 2.97%. The issue is priced at a P/BV of 2.56 based on its NAV of Rs. 23.05 as of June 30, 2024, and at a P/BV of 1.80 based on its post-IPO NAV of Rs. 32.75 per share. 

If we attribute FY25 annualized super earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 24.89. Based on FY23 earnings the P/E stands at 90.77. The issue relatively appears aggressively priced. 

For the reported periods, the company has posted PAT margins of 0.35% (FY22), 0.82% (FY23), 1.08% (FY24), 3.24 (Q1-FY25), and RoCE margins of 4.04%, 5.45%, 9.13%, 4.27% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends since incorporation. 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 Rishi Techtex, and Emmbi Ind. as their listed peers. They are trading at a P/E of 34.5 and 23.2 (as of September 06, 2024). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 21st mandate from Interactive Financial in the last four fiscals (including the ongoing one), out of the last 13 listings, 3 listed at discount, 1 at par and the rest listed with premiums ranging from 2.86% to 90% on the date of listing.

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