Agarwal Float NSE SME IPO review (May apply)

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Review By Dilip Davda on February 7, 2023

•    AFGIL is in the trading business of a variety of glass products.
•    It fully depends on third-party supply which bears the high risk.
•    The sudden boost in its bottom lines for H1-FY23 raises eyebrows.
•    It is spending over 24% for the IPO process indicating arranged funding.
•    Well-informed/Cash surplus-risk seekers may consider investment for the medium term.

ABOUT COMPANY:
Agarwal Float Glass India Ltd. (AFGIL) is engaged in the business of trading glass and specialized glass products by procuring quality products from manufacturers and selling them either through its sales managers or directly to customers, as a wholesaler of glass and glass products. Its valued customers are spread across the country and work across varied industry segments such as office buildings, hotels, institutions, banks, insurance companies, shopping malls, diplomatic residences, etc.

AFGIL's products cater to a range of end-use industries including construction, automotive, and industrial sectors, with a variety of applications such as exterior and interior spaces of residential and commercial buildings. Its product portfolio primarily consists of clear glass, different kinds of value-added glass products and processed glass products, of varying thicknesses. 

The company also trades a range of value-added glass products including clear frosted glass, clear sheet glass, mirror, tinted glass, and reflective glass which have a wide range of applications. It also offers processed glass, which includes, toughened glass, frosted glass, frosted design glass, leaguered glass, figure glass, heat-strengthened glass, insulated glass, PVB laminated glass, and bullet-resistant glass and all building glasses among others.

The company is highly dependent upon suppliers and distributors, namely Saint-Gobain India Private Limited, Sisecam Flat Glass India Private Limited, Gold Plus Glass Industry Limited, Asahi India Glass Limited and Gujarat Guardian Limited., for delivering quality products to its customers. AFGIL is a wholesaler of glass and glass products. The Company has devised an extensive supplier selection process in order to identify and evaluate the effectiveness and quality of the products manufactured by the suppliers, reduce purchase risk, maximize overall value to the purchaser, and develop closeness and long-term relationships between buyers and suppliers. Thus the company is simply doing trading activities and has no manufacturing unit. As of September 30, 2022, it had 20 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 2190000 equity shares of Rs. 10 each at a fixed price of Rs. 42 per share to mobilize Rs. 9.20 cr. The issue opens for subscription on February 10, 2023, and will close on February 15, 2023. The minimum application to be made is for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 30.23% of the post-IPO paid-up capital of the company. AFGIL is spending Rs. 2.22 cr. (24%) for this IPO and from the net proceeds, it will spend Rs. 6.25 cr. for working capital, and Rs. 0.73 cr. for general corporate purposes. Higher spending for the IPO process indicates arranged funding.

GYR Capital Advisors Pvt. Ltd. is the sole lead manager for this issue and KFin Technologies Ltd. is the registrar of the issue. SMC Global Securities Ltd. is the market maker of the company. 

The company has issued the entire equity at par so far and has also issued bonus shares in the ratio of 3 for 2 in December 2022. The average cost of acquisition of shares by the promoters is Rs. 4.00 per share. 

Post-IPO, AFGIL's current paid-up equity capital of Rs. 5.05 cr. will stand enhanced to Rs. 7.24 cr. Based on the upper cap of the issue price, the company is looking for a market cap of Rs. 30.42 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, AFGIL has posted a turnover/net profit of Rs. 32.27 cr. / Rs. 0.09 cr. (FY20), Rs. 31.88 cr. / Rs. 0.25 cr. (FY21), and Rs. 42.17 cr. / Rs. 1.02 cr. (FY22). For the H1 of FY23, it earned a net profit of Rs. 2.68 cr. on a turnover of Rs. 23.69 cr. The sudden boost in its bottom lines for H1 of FY23 is a bit surprising. 

For the last three fiscals, AFGIL has reported an average EPS of Rs. 2.99 and an average RoNW of 19.87%. The issue is priced at a P/BV of 2.59 based on its NAV of Rs. 16.20 as of March 31, 2022, and at a P/BV of 2.01 based on its post-IPO NAV of Rs. 20.92 per share.  The offer document is missing data on its NAV as of September 30, 2022. 

If we annualize FY23 earnings and attribute it to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 5.68. Thus on the basis of its super earnings for annualized FY23, the issue appears attractively priced, while on the basis of its FY22 earnings, it is at a P/E of 30. The sustainability of super earnings going forward is a major concern. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy post-listing, 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 12th mandate from GYR Capital in the last two fiscals (including the ongoing one). Out of the last 10 listings, all opened at premiums ranging from 2.45% to 1511% on the day of listing.

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