Aztec Fluid BSE SME IPO review (May apply)

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Review By Dilip Davda on May 7, 2024

•    AFML is engaged in providing printers, variety of inks, and related services.
•    The company reported steady growth in its top and bottom lines for the reported periods.
•    Based on FY24 super annualized earnings, the issue appears fully priced.
•    It is operating in a highly competitive and fragmented segment. 
•    Well-informed investors may park moderate funds for the medium term rewards.

ABOUT COMPANY:
Aztec Fluids & Machinery Ltd. (AFML) is provide coding and marking solutions to a diverse range of industries such as personal care, food & beverages, pharmaceuticals, construction materials, cables, wires & pipes, metals, automotive & electronics, agrochemicals, chemicals & petrochemicals etc. Its product portfolio includes (i) printers such as continuous inkjet printers (CIJ), Thermal Transfer Over printers (TTO), Drop on demand printers (DOD), NIJ printers (i.e. piezoelectric printers) and laser printers (ii) printer inks and (iii) printer consumable items i.e. makeup and cleaning solvents. Its range of products allows customers to print vital variable information like batch number, date, price, logo, brand, size, barcodes, promotional codes, meter marks, special marks etc. on the products such as steel tubes, aluminum panels, G.I. sheets, laminates, glass, PVC, plywood, woven sac, corrugated boxes, plastics and packing materials.

Since 2015, AFML is an exclusive distributor of Lead Tech (Zhuhai) Electronic Co. Ltd., China for CIJ Printers, TTO Printers and a range of associated equipment and accessories for various countries such as India, Sri Lanka, Nepal, Bhutan, Bangladesh, Kenya and Nigeria. The other type of printers such as DOD and NIJ are imported by it from other foreign suppliers. After import of printers, based on the customers' requirements the company carry out certain functions such as printer configuration & stand installation on printers. It also carries the necessary testing and trial run to check the desired output of printers.

It procures inks from Fluidtech Corp ("Fluidtech"), a partnership firm of its Promoters, with which it has entered into a manufacturing and supply agreement dated December 22, 2023. Fluidtech specializes in manufacturing a diverse colours of inks, including red, black, yellow, white, green, pink and UV, which are used in the printers in which the company deals in. It also has a manufacturing setup at Vatva, Ahmedabad from where it manufactures printer consumable items i.e. makeup and cleaning solvents as well as inks as per requirement basis. As on date of this RHP, the company owns two registered patents on the cartridge design in which the inks and makeup are filled. The cartridges are purchased by it from a local manufacturer, which manufactures the cartridges as per AFML design specifications. In order to shield from the risks associated with counterfeit products, it embed a PCB chipset on each cartridge for identification purpose. The company generates major domestic sales through customers situated in Gujarat, Rajasthan and Tamil Nadu.

The company executed a term sheet, dated November 6th, 2023, pertaining to the acquisition of all the equity shares of Jet Inks Private Limited ("Jet Inks"), which is a Chennai based company, engaged in the business of manufacturing of inks and also deals in printers, consumables and spares. Pursuant to the term sheet, AFML acquired 18.05% stake in Jet Inks at a consideration of Rs. 3 crores. Further, it has entered into Share Purchase Agreement dated April 22, 2024 with Jet Inks and its existing shareholders in relation to purchase of 38,92,858 equity shares of Jet Inks Private Limited (i.e. remaining 81.95% of the equity shares) for a consideration of Rs. 14 crores, payable before May 31, 2024. Upon payment of consideration and on satisfaction of conditions stipulated in the Share Purchase Agreement, AFML shall acquire 100% control of Jet Inks Private Limited, pursuant to which Jet Inks shall become our Wholly-owned Subsidiary Company. As of March 2024, it had 104 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 3600000 equity shares of Rs. 10 each to mobilize Rs. 24.12 cr. at the upper cap. It has announced a price band of Rs. 63.00 - Rs. 67.00 per share. The issue opens for subscription on May 10, 2024, 2024, and will close on May 14, 2024. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.47% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 14.00 cr. for proposed acquisition of equity shares of Jet Inks Pvt. Ltd., Rs. 3.72 cr. for repayment of certain borrowings, and the rest for general corporate purposes.

The issue is solely lead managed by Hem Securities Ltd. and Bigshare Services Pvt. Ltd. is the registrar of the issue. HEM group's Hem Finlease Pvt. Ltd. is the market maker for the company. 

The company has issued entire equity capital at par so far and has also issued bonus shares in the ratio of 199 for 1 in July 2022, and 4 for 1 in September 2023. The average cost of acquisition of shares by the promoters is Rs. 0.00, Rs. 0.01 per share.  

Post-IPO, company's current paid-up equity capital of Rs. 10 cr. will stand enhanced to Rs. 13.60 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 91.12 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 34.68 cr. / Rs. 2.46 cr. (FY21), Rs. 46.43 cr. / Rs. 3.11 cr. (FY22), and Rs. 54.53 cr. / Rs. 3.27 cr. (FY23). For 9M of FY24 ended on December 31, 2023, it earned a net profit of Rs. 4.51 cr. on a total income of Rs. 51.82 cr.

For the last three fiscals, it has reported an average EPS of Rs. 3.08, and an average RoNW of 23.32%. The issue is priced at a P/BV of 3.37 based on its NAV of Rs. 19.86 as of December 31, 2023. Post IPO NAV data on lower and upper price band is missing from IPO price band ad.

If we attribute annualized FY24 super earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 15.16. The issue appears fully priced. 

For the reported periods, the company has posted PAT margins of 7.27% (FY21), 6.81% (FY22), 6.03% (FY23), 8.85% (9M-FY24), and RoCE margins of 26.51%, 24.86%, 22.07%, 25.38% respectively for the referred periods. 

DIVIDEND POLICY:
The company has paid a dividend of 3000% for FY22 and 150% for FY23. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Control Print as their listed peers. It is trading at a P/E of 25.3 (as of May 07, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 42nd mandate from Hem Securities in the last three fiscals (including the ongoing one), out of the last 10 listings, 1 opened at discount and the rest with premiums ranging from 4.63% to 90% on the date of listing.

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