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Anand Rayons BSE SME IPO review (Avoid)

Review By Dilip Davda on Jun 13, 2019

•    ARL is engaged in trading of a variety of textile yarns.
•    The segment has high volume-low margins and cut-throat competition.
•    The issue is priced aggressively.
•    Merchant Banker has a topsy-turvy background.
 ABOUT COMPANY:
Anand Rayons Ltd.  (ARL) is trading in a variety of textile yarns and has dealership of Reliance Industries, JCT Ltd., Indorama Synthetics, Garden Silk Mills, Filatex etc. Initially, it was selling products in and around Surat only, but now it is supplying products to cities like Ahmedabad, Varanasi, Ichalkaranji, Bangaluru, Erode, Coimbatore etc. Currently, it is doing job work in a spinning unit under Job work agreement.  The company operates in a highly competitive field and the business has high volumes –low margins.
 
ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans of generating working capital (Rs. 8.75 cr.), General corpus fund (Rs. 3.16 cr.), ARL is coming out with a maiden IPO of 4688000 equity shares of Rs. 10 each at a fixed price of Rs. 27 per share to mobilize Rs. 12.66 Cr. ARL is spending Rs. 0.75 cr. for the process of this IPO. The issue opens for subscription on 18.06.19 and will close on 24.06.19. Minimum application is to be made for 4000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. Issue constitutes 31.29% of the post issue paid up capital of the company. The issue is solely lead managed by Guiness Corporate Advisors Pvt. Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Basan Equity Broking Ltd. (from Hyderabad)  is acting as a market maker for this issue.
 
The company has issued all shares at par against consideration for the takeover of the partnership business of the group.  The average cost of acquisition of shares by the promoters is Rs. 10 per share. Post issue ARL's current paid up equity capital of Rs. 10.30 cr. will stand enhanced to Rs. 14.98 cr.
 
FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, ARL has posted turnover/net profits of Rs. 219.92 cr. / Rs. 0.46 cr. (FY16), Rs. 270.62 cr. / Rs. 1.05 cr. (FY17) and Rs. 259.59 cr. / Rs. 1.45 cr. (FY18). For the first ten months ended on 31.01.19 of FY19, it has posted a net profit of Rs. 1.72 cr. on a turnover of Rs. 231.76 cr. Thus its top line has almost remained static since FY17.
 
For the last three fiscals, ARL has posted an average EPS of Rs. 1.67 and an average RoNW of 13.57%. The issue is priced at a P/BV of 2.23 on the basis of its NAV of Rs. 12.11 as on 31.03.18 and at a P/BV of 1.61 on the basis of post issue NAV of Rs. 16.77. If we annualize latest earnings and attribute it on fully diluted equity post issue then asking price is at a P/E of around 20, thus it is priced aggressively.

COMPARISION WITH LISTED PEERS:
As per offer documents it has shown Shiva Texyarn and Jakharia Fabrics as its listed peers that are currently trading at a P/Es of around 25 and 21 (as on 13.06.19).However, they are not strictly comparable on an apple to apple basis.
 
MERCHANT BANKER'S TRACK RECORD:
On merchant banker's front, this is the 29th mandate from its stable in last three fiscals. Out of last 10 listings, 1 opened at discount and the rest with premiums ranging from 0.013% to 28.72% on the day of listing.  It is worthwhile to mention that this is the merchant banker that brought the highly oversubscribed IPO of Jhandewalas Foods (278 times oversubscription) and the biggest primary SME IPO of MMP Industries (Rs. 85 cr.) But at the same time, it suffered suspension in the recent past and once again some of the group companies are under suspension currently. Many of its mandates are faring poorly on the bourses at present.


Conclusion / Investment Strategy

The textile segment is not fancied by investors in the given scenario. The issue is priced very aggressively. Guiness group has a topsy-turvy background. Considering all these facts, it is better to skip this issue.

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on Jun 13, 2019

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here. With entry barriers, SEBI wants only well-informed investors to participate in such offers. With crazy listings in the past, SME IPOs drew the attention of investors across the board. However, as SME issues have entry barriers and continued low preference from the broking community, any reader taking decisions based on any information published here does so entirely at own risk. The above information is based on information available as on date coupled with market perceptions. The Author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).


About Dilip Davda

Dilip Davda

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

Email: dilip_davda@rediffmail.com

Anand Rayons IPO FAQs

  1. 1. Why Anand Rayons IPO?

    The initial public offer (IPO) of Anand Rayons Limited offers an early investment opportunity in Anand Rayons Limited. A stock market investor can buy Anand Rayons IPO shares by applying in IPO before Anand Rayons Limited shares get listed at the stock exchanges. An investor could invest in Anand Rayons IPO for short term listing gain or a long term.

  2. 2. How is Anand Rayons IPO?

    Read the Anand Rayons IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. Anand Rayons IPO what should investors do?

    Anand Rayons IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the Anand Rayons IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.

  4. 4. Is Anand Rayons IPO good?

    Our recommendation for Anand Rayons IPO is to avoid.

  5. 5. Is Anand Rayons IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to avoid the Anand Rayons IPO.

  6. 6. When will Anand Rayons IPO allotment status?

    The Anand Rayons IPO allotment status will be available on or around [.]. The allotted shares will be credited in demat account by Jul 1, 2019. Visit Anand Rayons IPO allotment status to check.

  7. 7. When will Anand Rayons IPO list?

    The Anand Rayons IPO will list on Tuesday, July 2, 2019, at BSE SME.