Vasa Retail NSE SME IPO review (May apply)

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Review By Dilip Davda on January 18, 2018

Vasa Retail and Overseas Ltd. (VROL) (erstwhile Vasa International – a partnership firm) is primarily deals in all kinds of (a) stationery products viz. artistic materials, hobby colors, scholastic colors, scholastic stationery, office products, drawing instruments, writing instruments, office stationery, adhesives, notebooks, office supplies and writing instruments, books, pens, pencils, erasers, files, copier paper, bags and bottles; (b) procuring paper pulp and supplying the same to paper mills and (c) procuring bag fabric and supplying it to the other bag manufacturers and also using the same for manufacturing its products (school and office bags). These stationery products are essentially used by school going children and offices as a part of their stationary requirements. On the other hand, paper pulp is the key raw material for the manufacturing of wide variety of paper. VROL classifies its product range into (i) school and education products; (ii) fine art and hobby products; and (iii) office products.

VROL also has exclusive license agreements dated October 01, 2014 and June 10, 2016 with Oxford Limited to market, sell, distribute, and promote various stationary products under the brand 'University of Oxford' to around twenty six (26) countries spread across Asia, Middle East and Africa including India. This arrangement can be renewed for a further period on mutual consent subject to Company achieving the expected milestones as referred under the license agreement. Currently company distributes its product range through a network of 7 distributors and caters to more than 500 stores. In addition to the above business activities, Company also acts as a supplier of copier paper under the brand 'Trion' (not owned by it) to certain paper dealers in the Middle East. VROL’s in house brand is “VASTA”.

To part finance its working capital and general corpus fund needs, VROL is coming out with a maiden IPO of 1600000 equity shares of Rs. 10 each at a fixed price of Rs. 30 per share to mobilize Rs. 4.80 crore. Issue opens for subscription on 24.01.18 and will close on 29.01.18. Minimum application is to be made for 4000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. Issue constitutes 26.70% of the post issue paid up capital of the company. Issue is solely lead managed by Hem Securities Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Average cost of acquisition of shares by the promoters is Rs. 10. Having issued major equity shares at par at the time of MoA, it issued further 200000 shares at Rs. 30per share in December 2017. Post issue its current paid up equity capital of Rs. 4.39 crore will stand enhanced to Rs. 5.99 crore.

On performance front, VROL has posted turnover/net profits of Rs. 17.56 cr. / Rs. 0.08 cr. (FY14), Rs. 18.82 cr. / Rs. –(0.11) cr. (FY15), Rs. 21.86 cr. / Rs. –(0.15) cr., (FY16) and Rs. 23.85 cr. / Rs. 0.92 cr. (FY17). It posted operational losses for FY 15 and 16 despite growth in top lines. For the last three fiscals it has posted an average EPS of Rs. 0.93 and average RoNW of 16.74 (on an equity base of Rs. 2.05 crore). Asking price is at a P/BV of 3.37 (on the basis of its NAV of Rs. 8.90 as on 20.10.17) and at a P/BV of 1.97 (on the basis of post issue NAV of Rs. 15.24). For the period ended on 20.10.17 of the current fiscal, it has reported net profit of Rs. 0.86 cr. on a turnover of Rs. 17.92 cr. Thus for last 19 months it has been doing profitable business. However, its NAV remained below par as at the said date. If we annualize latest working and attribute earnings on fully diluted post issue equity then asking price is at a P/E of around 12 against its peers Kokuyo and Linc Pen trading (as on 18.01.18) at a P/E of around 2000 and 60.

On merchant banker’s front, this is 34th mandate in last three fiscals (overall 44th mandate so far). Out of last 10 listings, 1 opened at 3% premium, 1 at 9% premium and the rest at 20% premiums to offer price on the listing day.

Conclusion: Although issue appears reasonably priced, dismal performance in the recent past raises concern. However, stationery sector is poised for bright prospects as Government is giving major thrust on education. Considering recent encouraging performance and bright prospects ahead, investors may consider investment for long term. (Subscribe – for long term).

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