Bizotic Comm BSE SME IPO review (Avoid)

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Review By Dilip Davda on June 10, 2023

•    BCL is engaged in the business of readymade garments marketing. 
•    It fared poorly till FY22. The sudden boost in its bottom line for FY23 raises eyebrows.
•    Based on its super profits for FY23, the issue appears greedily priced. 
•    BCL operates in a highly competitive and fragmented segment. 
•    There is no harm in skipping this pricey bet. 

ABOUT COMPANY:
Bizotic Commercial Ltd. (BCL) is engaged in the business of manufacturing, designing and marketing readymade garments offering a diverse range of men's f Formal Wear, Casual Wear, Party Wear, Fit Wear, Sports Wear, Comfort Wear, Ethnic Wear, and Winter Wear. It serves customers through the channels of retail stores and e-commerce. 

BCL's garment manufacturing process includes cutting, stitching, sewing, finishing, inspection and packing. It outsources the entire garments manufacturing on a job work basis from third-party contractors from time to time and provides the technical specifications such as designs, pattern, quality, fabric etc. to them who, based on BCL's specifications, procure the requisite raw materials at their own costs and begin the manufacturing process. 

However, it has not entered into a Job work agreement. The company opened its first outlet in the Financial Year 2017-2018, under its own brand name "URBAN UNITED" in Ajmer, Rajasthan. From 2017 to 2020, we have opened approx. our 40 outlets on a franchisee basis in Rajasthan and Haryana Only. 

Because of the adverse impact of Covid -19 Lockdown, many of its Franchisee holders cannot sustain due to the hefty rent charges of the stores. Almost 28 franchised stores on rented premises were closed during the Covid-19 period. As the garments industry is one of the everlasting and all-time booming industries, BCL came with its own Showrooms/Stores in 2021-22. All showrooms are located at prime locations in different cities of Rajasthan and Bihar. Currently, it has 20 stores in other cities of Rajasthan and 1 in Bihar on ongoing business out of which, 17 stores are on a franchisee basis and 4 stores are owned by the company, itself. Its owned 4 Stores are located in Jaipur, Jodhpur, Bhilwara and Chittorgarh in Rajasthan.

After filling out the Draft Prospectus, the company has issued new 4 LOIs to open the stores/showrooms on a franchisee basis in Shaheen Bagh (New Delhi), Green City Square (Bhatinda), Akola (Maharashtra) and Bhucho Mandi (Punjab). As of January 31, 2023, it had 41 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 2412000 equity shares of Rs. 10 each at a fixed price of Rs. 175 per share to mobilize Rs. 42.21 cr. The issue opens for subscription on June 12, 2023, and will close on June 15, 2023. The minimum application to be made is for 800 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 30% of the post-IPO paid-up capital of the company. BCL is spending Rs. 3.60 cr. for this IPO process and from the net proceeds, it will utilize Rs. 4.50 cr. for setting up the retail network, Rs. 1.80 cr. for repayment of loans, Rs. 22.70 cr. for working capital, and Rs. 9.61 cr. for general corporate purposes.  

Interactive Financial Services Ltd. is the sole lead manager and Bigshare Services Pvt. Ltd. is the registrar of the issue. Beeline Broking Ltd. is the market maker of the company. 

Having issued initial equity shares at par, the company issued further equity shares at Rs. 165 per share in November 2022. It has also issued bonus shares in the ratio of 20 for 1 in December 2022. The average cost of acquisition of shares by the promoters is Rs. 8.03 and Rs. 29.41 per share. 

Post-IPO, BCL's current paid-up equity capital of Rs. 5.63 cr. will stand enhanced to Rs. 8.04 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 140.70 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, BCL has posted a turnover/net profit of Rs. 11.14 cr. / Rs. 0.16 cr. (FY20), Rs. 16.80 cr. / Rs. 0.34 cr. (FY21), and Rs. 53.42 cr. / Rs. 0.60cr. (FY22). For the 9M of FY23 ended on December 31, 2022, it earned a net profit of Rs. 2.90 cr. on a turnover of Rs. 38.48 cr. The last 21 months of working appear to have been window dressed to get the fancy valuation. The sudden boost in bottom lines for 9M of FY23 is raising eyebrows and concern over the sustainability of the same. It appears stock in trade and inventory adjustments have propelled the bottom lines. 

For the last three fiscals, BCD has reported an average EPS of Rs. 0.82 and an average RoNW of 51.27%. The issue is priced at a P/BV of 11.38 based on its NAV of Rs. 15.38 as of December 31, 2022. The offer document is missing its post-IPO NAV details. 

If we annualize FY23 super earnings and attribute it to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 36.38 and based on its FY22 earnings, P/E stands at 236.49. Thus the IPO is greedily priced based on FY23 annualized earnings and exorbitantly priced based on FY22 performance. 

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

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Trent Ltd., Bella Casa, and Lorenzini Apparels as their listed peers.  They are currently trading at a P/E of 102.29, 18.84, and 78.95 (as of June 09, 2023). However, they are not truly comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 8th mandate from Interactive Financial in the last three fiscals (including the ongoing one). Out of the last 7 listings, 2 opened at discount, 1 at par and the rest listed at premiums ranging from 0.79% to 2.22% on the listing date. Thus the LM has a poor track record so far.

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