Sylvan Ply NSE SME IPO revie (May apply)

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Review By Dilip Davda on June 18, 2024

•    The company is engaged in the manufacturing of various wood products.
•    It posted steady growth in its top lines, but the sudden boost in bottom lines from FY22 onwards raises eyebrows. 
•    It is operating in a highly competitive and fragmented segment. 
•    Based on FY24 super annualized earnings, the issue appears fully priced. 
•    Well-informed investors may park moderate funds for the long term rewards. 

ABOUT COMPANY:
Sylvan Plyboard (India) Ltd. (SPIL) is engaged into manufacturing of various wood products such as plywood, block board, flush door, veneer and sawn timber across various grades and thickness. 

Company's product range includes Plywood, Block Boards & Flush Doors, Veneer and Swan Timber. It sells its products under the brand name "Sylvan". As on the date of this Prospectus, the Company has 223 Authorized Dealers present across 13 states. 

It has more than 12 numbers of plywood products in its basket, thickness ranging from 4 mm to 40 mm. Plywood segment (including Block Board and Flush Door) contributes approx. 81.74% of its revenue from operations. The Company has large range of product offering to wide range of customers, "Sylvan Z+ Premium Plus" is the most premium plywood product of the Company amongst other offerings in premium segment. 

It has "Robusta Premium" & "Primo Plus" for middle segment and "Sylvan Blu" which is aimed at lower class segment with a view of addressing the growing demand of cheaper plywood and their alternatives. It also offers Boiling Water Proof (BWP) and Boiling Water Resistant (BWR) plywood. Its range of plywood products caters to various customers across various segments.

The products are supplied to every industry where in plywood is required for commercial and residential infrastructure like the Shipping Industry, Construction Industry, Real Estate, Interior Decor, Furniture, Aviation Industry, Plywood Industry, Education Industry, Hospital Industry, Transport Industry, Banking, Govt. Projects etc. Total borrowings of Rs. 64.55 cr. as of December 31, 2023, remains major concern. As of the date of filing this offer document, it had 817 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 5100000 equity shares of Rs. 10 each at a fixed price of Rs. 55 per share to mobilize Rs. 28.05 cr. The issue opens for subscription on June 24, 2024, and will close on June 26, 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 26.32% of the post-IPO paid-up capital of the company. The company is spending Rs. 3.10 cr. (11.06% of the issue) for this IPO process, and from the net proceeds, it will utilize Rs. 3.71 cr. for capex on additional plant and machinery, Rs. 16.94 cr. for working capital, and Rs. 4.30 cr. for general corporate purposes. 

The issue is solely lead managed by Finshore Management Services Ltd., and Bigshare Services Pvt. Ltd. is the registrar to the issue. Black Fox Financial 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. 500 between March 2003 and September 2023. It has also issued bonus shares in the ratio of 1 for 1 in May 2018, and 1 for 2 in December 2023. The average cost of acquisition of shares by the promoters is Rs. 8.02, Rs. 9.55, Rs. 15.16, Rs. 33.85, and Rs. 46.58 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 14.28 cr. will stand enhanced to Rs. 19.38 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 106.56 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 110.29 cr. / Rs. 0.37 cr. (FY21), Rs. 172.93 cr. / Rs. 3.05 cr. (FY22), and Rs. 199.15 cr. / Rs. 3.53 cr. (FY23). For 9M of FY24 ended on December 31, 2023, it earned a net profit of Rs. 4.48 cr. on a total income of Rs. 161.93 cr. The sudden boost in bottom lines from FY22 onwards are surprising. 

For the last three fiscals, it has reported an average EPS of Rs. 2.06, and an average RoNW of 3.31%. The issue is priced at a P/BV of 0.83 based on its NAV of Rs. 66.25 as of December 31, 2023, and at a P/BV of 0.89 based on its post-IPO NAV of Rs. 61.69 per share.

If we attribute annualized FY24 earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 17.86. Thus, based on its super FY24 earnings, the issue appears fully priced. 

For the reported periods, the company has posted PAT margins of 0.34% (FY21), 1.77% (FY22), 1.77% (FY23), 2.77% (9M-FY24), and RoCE margins of 4.82%, 6.56%, 7.53%, 7.56% 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 Archidply Ind., Duroply Ind., Western India Ply, as their listed peers. They are trading at a P/E of 30.4, 288.0, and 39.0 (as of June 14, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 25th mandate from Finshore Management in the last four fiscals (including the ongoing one), out of the last 10 listings, 2 opened at discount, 1 at par and the rest with premiums ranging from 13.89% to 94.44% on the date of listing. 

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