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Bonlon Ind BSE SME IPO review (Avoid)

Review By Dilip Davda on Jun 26, 2020

•    BIL is engaged in metals, hospitality and civil construction activities.
•    It has inconsistent financial track records.
•    The company faces stiff competition in its entire field of operations.
•    LM is raising curtain with this offer after a gap of 20 months.
•    Though IPO pricing appears lucrative, there is no harm in giving it a miss.

ABOUT COMPANY:
Bonlon Industries Ltd. (BIL) that started its operations in the form of traders in copper rods and bars and also supervising the manufacturing unit of copper bars in Sri Lanka. It uses to do third party operations up to 2013, thereafter it started its own manufacturing unit and also merged three group entities to obtain synergy in the business model. Currently, it operates in metals, hotel business and civil constructions. Thus it has diverse activities.

However, the company's logo is not yet registered and is clashing with the group's interest. It operates from a rented room of a hotel owned by the group. All these segments are facing stiff competitions with the fragmented business model.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 10.12 cr.), BIL is coming out with a maiden IPO of 3756000 shares of Rs. 10 each at a fixed price of Rs. 28 per share to mobilize Rs. 10.52 cr. The issue opens for subscription on 30.06.20 and will close on 03.07.20. 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 26.48% of the post issue paid-up capital of the company.

The issue is solely lead managed by Sarthi Capital Advisors Pvt. Ltd., while Bigshare Services Pvt. Ltd. is the registrar to the issue. Choice Equity Broking Pvt. Ltd. is acting as a market maker for this IPO. BIL is spending Rs. 0.40 cr. for this IPO process.  From the issue expenses point of view, this issue is fully structured with funding arrangements.

Post issue BIL's current paid-up equity capital of Rs. 10.43 cr. will stand enhanced to Rs. 14.18 cr. It mulls a market cap of Rs. 39.71 cr. post this issue.

Having issued initial equity at par, BIL has also issued/converted equity shares in the price range of Rs. 40.94 to Rs. 50 per share between March 2001 and August 2018. The average cost of acquisition of shares by the promoters is Rs. 23.08 per share.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, on a consolidated basis, BIL has reported turnover/net profits of Rs. 238.81 cr. / Rs. - (1.23) cr. (FY17), Rs. 243.13 cr. / Rs. 0.28 cr. (FY18) and Rs. 217.44 cr. / Rs. 2.82 cr. (FY19). For the nine months period ended on 31.12.2019 of FY20, it has earned a net profit of Rs. 13.88 cr. on a turnover of Rs. 186.99 cr. The company has shown inconsistency in turnover/profits. A sudden boost in the bottom line for the last partial year is perhaps due to window dressing and raises concern.

For the last three fiscals, BIL has posted an average EPS of Rs. 1.52 and an average RoNW of 1.99%. The issue is priced at a P/BV of 0.62 based on its NAV of Rs. 45.05 as on 31.03.2019 and at a P/BV of 0.69 on the basis of post-issue NAV of Rs. 40.54.

But its recent higher earnings for nine months of FY20 raises concern on sustainability going forward. Based on FY19 earnings and current equity capital, the issue is priced at a P/E of around 7.39 and on a weighted average basis at a P/E of 18.42 as claimed. Based on these parameters issue appears highly-priced.

If we annualize latest super earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of 2.15 making it a lucrative offer.

As at 31.12.19, its trade receivables are Rs. 13.93 cr. while trade payables and other current liabilities are Rs. 76.85 cr. which indicates an alarming situation. BIL has not declared any dividend in any financial years so far.

COMPARISION WITH LISTED PEERS:
As per offer documents, BIL has shown Hisar Metal and Shalimar Wires as its listed peers. They are currently trading at a P/Es of around 7.02 and -3.40 (as on 26.06.2020). 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 43rd mandate from its stable since FY 2012-13. It opted for dormancy after its last SME IPO in September 2018. It is now raising curtain once again after a gap of nearly 20 months and that too in the current pandemic situation, which is most surprising. Out of the last 10 mandates listed one opened at discount, two at par and the rest opened with premiums ranging from 0.07% to 22.87% on the day of listings. Thus it has an average track record.


Conclusion / Investment Strategy

BIL has shown inconsistency in its top and bottom lines. Super earnings for the first three-quarters of FY20 raises eyebrows and concern over sustainability for the same going forward. The company operates in a highly competitive business that is fragmented. Although issue price appears lucrative on prima facie basis, considering its inconsistent financial data, investors may give it a miss.

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on Jun 26, 2020

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

Bonlon Industries IPO FAQs

  1. 1. Why Bonlon Industries IPO?

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

  2. 2. How is Bonlon Industries IPO?

    Read the Bonlon Industries IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. Bonlon Industries IPO what should investors do?

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

  4. 4. Is Bonlon Industries IPO good?

    Our recommendation for Bonlon Industries IPO is to avoid.

  5. 5. Is Bonlon Industries IPO worth Investing?

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

  6. 6. When will Bonlon Industries IPO allotment status?

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

  7. 7. When will Bonlon Industries IPO list?

    The Bonlon Industries IPO will list on Monday, July 13, 2020, at BSE SME.