Ambo Agritec BSE SME IPO review (May apply)

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Review By Dilip Davda on November 17, 2022

•    AAL is primarily a biscuit manufacturer and is outsourcing other products for marketing.
•    It is also trading in Crude Linseed Oil and Soya Bean Meal.
•    Based on its financial performance so far, the issue appears fully priced. 
•    It's a region-centric player with major revenues from the Eastern parts of the country. 
•    Well-informed cash surplus risk takers may consider parking funds for the long term.

ABOUT COMPANY:
Ambo Agritec Ltd. (AAL) is primarily engaged in the business of Manufacturing Biscuits, outsourced manufacturing of Edible Oils, Vanaspati, and Bengali Speciality Products (through third parties). In addition to this, the company is also engaged in trading Crude Linseed Oil, and Soya Bean Meal. It uses raw materials of premium quality sourced from reputed local suppliers for Biscuits and raw materials imported for Edible Oils & Vanaspati, which help it to ensure the quality of products. AAL's state-of-the-art manufacturing plant for biscuits is situated at Mangalpur Industrial Estate, Raniganj in the state of West Bengal, India. 

Its products are marketed under its own brand names "Happy Bites" for Biscuits, "Happy Heart" for Edible Oil, "Ambo Gold" & "Vanaspati 2000" for Vanaspati, and "Max Health" for Bengali Speciality Products. As of the date of filing this offer document, it had 92 employees on its payroll. It is operating in a highly competitive and fragmented segment. There are many big players in the said fields. 

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 8.96 cr.), and general corporate purpose (Rs. 0.75 cr.), AAL is coming out with a maiden IPO of 3400000 equity shares of Rs. 10 each at a fixed price of Rs. 30 per share to mobilize Rs. 10.20 cr. The issue opens for subscription on November 21, 2022, and will close on November 24, 2022. A minimum application is to be made for 4000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 36.19% of the post-issue paid-up equity capital of the company. AAL is spending Rs. 0.49 cr. for this IPO process. 

The sole lead manager for this IPO is Finshore Management Services Ltd., and Cameo Corporate Services Ltd. is the registrar of the issue. Nikunj Stock Brokers Ltd. is also acting as a market maker for this company. 

Having issued/converted initial equity shares at par, the company converted the loan into 1250000 shares at a price of Rs. 24 per share and has also issued bonus shares in the ratio of 1 for 1 in September 2022. The average cost of acquisition of shares by the promoters is Rs. 8.07 per share. 

Post-IPO, AAL's current paid-up equity capital of Rs. 6.00 cr. will stand enhanced to Rs. 9.40 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 28.19 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, AAL has posted a turnover/net profit of Rs. 74.28 cr. / Rs. 0.32 cr. (FY20), Rs. 47.17 cr. / Rs. 0.19 cr. (FY21), and Rs. 94.86 cr. / Rs. 1.19 cr. For the first quarter of FY23 ended on June 30, 2022, it earned a net profit of Rs. 0.50 cr. on a turnover of Rs. 16.21 cr. It suffered a setback during the pandemic year. As of June 30, 2022, its debt-equity ratio stood at 2.74, which raises concern. 

For the last three fiscals, AAL has reported an average EPS of Rs.2.04 and an average RoNW of 20.91%. The issue is priced at a P/BV of 2.49 based on its NAV of Rs. 12.03 as of June 30, 2022, and at a P/BV of 1.62 based on its post-IPO NAV of Rs. 18.52. 

If we annualize FY23 earnings and attribute it to a post-IPO fully diluted paid-up equity base, then the asking price is at a P/E of around 14.22. Based on its financial performance so far, the issue appears fully priced. 

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, AAL has no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
This is the 31st mandate from Finshore Management in the last five fiscals (including the ongoing one). Out of the last 10 listings, 2 opened at discount, 2 at par, and the rest with premiums ranging from 0.91% to 150% on the day of listing.

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