Walpar Nutritions NSE SME IPO review (Avoid)

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Review By Dilip Davda on June 26, 2021

•    WNL is engaged in the manufacturing of Nutraceutical/Ayurvedic/Food Supplement products.
•    Its top line for all these years is almost stagnant with a marginal rise in the bottom line.
•    Based on financial parameters issue is priced exorbitantly.
•    The company operates in a highly competitive field and hence will see pressure on margins.
•    There is no harm in giving this IPO a 'MISS'.

ABOUT COMPANY:
Walpar Nutritions Ltd. (WNL) is engaged in the manufacturing of a wide range of Nutraceutical, Ayurvedic, Cosmeceuticals, Sexual Wellness and Food Supplement products. The company develops, manufactures and commercializes Herbo-Nutraceutical products including marketing, sales, quality assurance, distribution, compliance and regulatory aspects under Nutraceuticals. It has product approvals from FSSAI and Ayush. It has applied for patents for its three products.

WNL has developed more than 100 formulations and 1000 brands for the third party for the domestic market. Currently, it has an installed capacity of manufacturing 30 lakhs tablets, 12.5 lakhs capsules, 1.5 lakhs oral liquids and 2.00 lakhs sachets per month. The company is also engaged in the trading of raw material used in the manufacturing of nutraceutical products.  As of December 31, 2020, WNL has a total strength of 25 employees (excluding contract labourers in various departments. The company exclusively rely on a third party for logistics on procurement and supply of goods. It operates in a highly competitive field.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans for investment in subsidiary (Rs. 1.80 cr.), working capital (Rs. 2.90 cr.), general corpus fund (Rs. 1.50 cr.) needs, WNL is coming out with a maiden public issue of 1200000 equity share of Rs. 10 each at a fixed price of Rs. 55 per share to mobilize Rs. 6.60 cr. The issue opens for subscription on June 30, 2021, and will close on July 05, 2021. Minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.42% of the post issue paid-up capital of the company. WNL will be spending Rs. 0.40 cr. for this IPO process.

The issue is solely lead managed by Beeline Broking Ltd., Skyline Financial Services Pvt. Ltd. is the registrar and Nikunj Stock Brokers Ltd. is the market maker for this issue.

Having issued initial equity at par, the company raised further equity at Rs. 50 per share in January 2021. The average cost of acquisition of shares by the promoters is Rs. 10 per share.

Post issue company's current paid-up equity capital of Rs. 3.34 cr. will stand enhanced to Rs. 4.54 cr. At the issue price, WNL is looking for a market cap of Rs. 24.98 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, WNL (as a partnership organization) has reported turnover/net profit of Rs. 6.45 cr. / Rs. 0.003 cr. (FY18), Rs. 12.83 cr. / Rs. 0.07 cr. (FY19) and Rs. 16.71 cr. / Rs. 0.12 cr. (FY20). For the period April 01, 2020, to December 03, 2020, it posted a turnover of Rs. 11.36 cr. with a net profit of Rs. 0.06 cr. Post conversion into a public limited company, it has reported a turnover of Rs. 1.43 cr. with a net profit of Rs. 0.23 cr. for the period December 04, 2020, to December 31, 2020. If we combine FY21 9M financial data, then it has earned a net profit of Rs. 0.29 cr. on a turnover of Rs. 12.79 cr. for the period. Super earnings post-conversion for less than a one-month period is the most surprising one and raises concern.

For the last three fiscals, WNL has posted an average EPS of Rs. 0.28 and an average RoNW of 5.45%. The issue is priced at a P/BV of 5.29 based on its NAV of Rs. 10.39 as of December 31, 2020, and at a P/BV of 2.24 based on its post-issue NAV of Rs. 24.52 per share.

If we annualize FY21 earnings (that includes super earnings for just 28 days) and attribute it on fully diluted post issue equity then the asking price is at a P/E of 64 and based on FY20 earnings, it is priced at a P/E of 211 plus, making this IPO exorbitantly priced.

COMPARISON WITH LISTED PEERS:
As per offer documents, WNL has shown Earum Pharma and Valencia Nutrition as its listed peers. They are currently trading at a P/E of 00 and 00 (as of June 25, 2021). However, they are not fully comparable on an apple to apple basis.

DIVIDEND POLICY:
WNL has not paid any dividend since incorporation. Post listing it will follow a prudent dividend policy based on its financial performance and future prospects.

MERCHANT BANKER'S TRACK RECORDS:
This is the 8th mandate from this LM's stable in the last five fiscals including the ongoing one. Out of the last 7 listings, 1 opened at discount, 1 at par and the rest in premiums ranging from 0.137% to 10% on a listing day.

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