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Bhatia Colour BSE SME IPO review (Avoid)

Review By Dilip Davda on Mar 11, 2022

•    BCCL is engaged in the trading, formulating and manufacturing chemicals needed by the textile sector. 
•    Its financial data is not in line with the asking price. 
•    Overall equity dilution of 40% plus.
•    Based on its earning parameters, the issue is exorbitantly priced. 
•    There is no harm in ignoring this pricy bet. 

ABOUT COMPANY: 
Bhatia Colour Chem Ltd. (BCCL) emerged as a corporate entity on January 15, 2022, post-merger/acquisition of Bhatia Colour Chem (proprietary concern), Ravi Chem (proprietary concern) and joining of technocrats in the field of chemicals. On December 10, 2021, this company was formed to carry on the business of trading, formulating and manufacturing various chemicals that are mainly used by the textile segment. 

Currently, the products basket includes foil binders, printing inks, zari binders required by the polyester and cotton textiles industry. As of January 31, 2022, the company had 45 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY: 
To part finance its needs for acquisition of partnership firm M/s Polychem Exports (Rs. 21.00 cr.), working capital (Rs. 8.90 cr.) general corporate purpose (Rs. 9.70 cr.), BCCL is coming out with a maiden IPO of 5000000 equity shares of Rs. 10 each at a fixed price of Rs. 80 per share to mobilize Rs. 40.00 cr. The issue opens for subscription on March 14, 2022, and will close on March 16, 2022. Minimum application is to be made for 1500 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 40.87% of the post issue paid-up equity capital of the company. BCCL will spend Rs. 0.40 cr. for this IPO process. 

The issue is solely lead managed by Interactive Financial Services Ltd., Bigshare Services Pvt. Ltd. is the registrar to the issue and NNM Securities Pvt. Ltd. is the market maker for this company. 

Having issued initial equity shares at par value, the company raised further equity in the price range of Rs. 80 - Rs. 160 per share between January 2022, February 2022. It has also issued bonus shares in the ratio of 65 shares for 10 shares held in January 2022. The average cost of acquisition of shares by the promoters is Rs. 10.75 per share. 

Post this IPO, BCCL's current paid-up equity capital of Rs. 7.23 cr. will stand enhanced to Rs. 12.23 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 97.87 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, for the period ended on February 18, 2022, for FY22, BCCL has posted a turnover of Rs. 5.32 cr. and a net profit of Rs. 0.35 cr. The main part of the newly emerged BCCL, i.e. Ravi Chem posted turnover/net profits of Rs. 48.72 cr. / Rs. 0.55 cr. (FY20), Rs. 28.57 cr. / Rs. 0.34 cr. (FY21). For the period ended on January 14, 2022, for FY 22, it has earned a net profit of Rs. 0.17 cr. on a turnover of Rs. 39.01 cr. Thus except this, there is no other data on the performance of Bhatia Colour Chem given in the offer documents. 

For the FY22 till February 18, 2022, it has posted an EPS of Rs. 1.43 and RoNW of 2.12% (both not annualised). The issue is priced at a P/BV of 3.47 based on its NAV of Rs. 23.04 as of February 18, 2022, and at a P/BV of 1.73 based on its post-IPO NAV of Rs. 46.32. If we annualize FY22 earnings and attribute it to the fully diluted post-IPO paid-up equity capital, then the asking price is at a P/E of 166 making it an exorbitantly priced bet.  If we take this data as per the offer document, then it is at a high P/E of 55.90 (refer to page 49). 

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

DIVIDEND POLICY:
The company has not declared any dividend since incorporation. It will adopt a prudent dividend policy post listing, based on its financial performance and future prospects. 

MERCHANT BANKER'S TRACK RECORDS:
This is the first mandate from Interactive Financial and hence, there is no track record available for this lead manager. 


Conclusion / Investment Strategy

Based on its financial data, the issue is exorbitantly priced. Even the total equity dilution is above 40% raising concern. This segment is highly competitive and fragmented. The sustainability of margins shown for the period ended February 18, 2022, raises concern. Considering all these factors, there is no harm in ignoring this pricy issue.

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on Mar 11, 2022

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

Bhatia Colour Chem IPO FAQs

  1. 1. Why Bhatia Colour Chem IPO?

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

  2. 2. How is Bhatia Colour Chem IPO?

    Read the Bhatia Colour Chem IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. Bhatia Colour Chem IPO what should investors do?

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

  4. 4. Is Bhatia Colour Chem IPO good?

    Our recommendation for Bhatia Colour Chem IPO is to avoid.

  5. 5. Is Bhatia Colour Chem IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to avoid the Bhatia Colour Chem IPO.

  6. 6. When will Bhatia Colour Chem IPO allotment status?

    The Bhatia Colour Chem IPO allotment status will be available on or around [.]. The allotted shares will be credited in demat account by [.]. Visit Bhatia Colour Chem IPO allotment status to check.

  7. 7. When will Bhatia Colour Chem IPO list?

    The Bhatia Colour Chem IPO will list on Thursday, March 24, 2022, at BSE SME.