Alkosign BSE SME IPO review (Avoid)

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Review By Dilip Davda on January 14, 2022

•    Alkosign is engaged in the manufacturing of presentation systems.
•    It has been just 20 months working since incorporation.
•    The issue is at negative P/E as the company posted a loss for FY22 till Nov. 21.
•    The issue is exorbitantly priced.
•    There is no harm in ignoring this pricy issue. 

ABOUT COMPANY: 
Alkosign Ltd. is engaged in the manufacturing of visual presentation systems namely writing boards/display boards/notice boards of different types along with its associated accessories and stands used for these boards, school benches, desks and their accessories.

As of date, it has several designs in the product basket, which are marketed under various trademarks such as "Alkosign", "Sit and Study", "Brainee", "Glassy-BO", "Ultra- EX", "Ultra". The company has introduced a new product, Glass White Boards, under the brand name, "Glassy-BO". Some of the key features of this product include 1) Compatible with any marker pen 2) Wiping away easily without staining or ghosting. 3) Lasts as much as the life span of the wall. As of the date of filing this offer documents, it had a network of 50 registered dealers. As of November 30, 2021, it had 33 employees on its payroll. The company has immense competition from local players amidst fragmented segments.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans for prepayment/repayment of certain borrowings (Rs. 3.00 cr.), working capital needs (Rs. 5.46 cr.) and general corporate purpose (Rs. 2.43 cr.), Alkosign is coming out with a maiden IPO of 2700000 equity shares of Rs. 10 each at a fixed price of Rs.45 per share to mobilize Rs. 12.15 cr. The issue opens for subscription on January 18, 2022, and will close on January 21, 2022. The minimum application to be made is for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 49.59% of the post issue paid-up capital of the company. Alkosign will spend Rs. 1.26 cr. for this IPO process which indicates that the issue is fully structured with pre-funding arrangements. 

The issue is solely lead managed by Shreni Shares Pvt. Ltd. and Skyline Financial Services Pvt. Ltd. is the registrar to the issue. Shreni shares Pvt. Ltd. is also the market maker for this company. 

Having issued initial equity at par, the company converted further equity at a price of Rs. 675 per share in November 2021 and has also issued bonus shares in the ratio of 60 for 1 in the same month. The average cost of acquisition of shares by the promoters is Rs. 8.66 and Rs. 9.70 per share.

Post-IPO, Alkosign's current paid-up equity capital of Rs. 2.75 cr. will stand enhanced to Rs. 5.45 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 24.50 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, since the company is formed only in March 2020, it has given just the last 20 months of working which is not justifying the asking price. For FY21 it has posted a turnover of Rs. 13.28 cr. with a net profit of Rs. 0.66 cr. and for the first eight months of FY22 ended on November 30, 2021, it has incurred a loss of Rs. - (0.64) cr. on a turnover of Rs. 5.92 cr. Due to these losses, its NAV as on the same date is negative at Rs. 8.84 (against face value of Rs. 10)

The issue is priced at a P/BV of 5.09 based on its NAV of Rs. 8.84 as of November 30, 2021, and at a P/BV of 1.84 based on its post-IPO NAV of Rs. 24.41. Thus company mulls positive NAV post issue with an exorbitantly priced offer. 

Due to loss incurred for the first eight months of FY22, the issue price is at a negative P/E and based on its FY21 earnings, the asking price is at a P/E of around 36.88, thus the issue is exorbitantly priced. 

COMPARISON WITH LISTED PEERS:
As per offer documents, Alkosign has no listed peers to compare with. 

DIVIDEND POLICY:
The company has not paid any dividend in the last three fiscals and will adopt a prudent dividend policy post listing based on its financial performance and future prospects. 

MERCHANT BANKER'S TRACK RECORD:
This is the 8th mandate from Shreni shares in the last three fiscals (including the ongoing one). Out of the last seven listings, 2 opened at par and the rest with premiums ranging from 0.68% to 19.05% on the day of listing. Thus the merchant banker has an average track record.

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