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Diksha Greens BSE SME IPO review (Avoid)

Review By Dilip Davda on Nov 21, 2018

•    DGL is primarily in the business of timber related trading and marketing.
•    It has diversified into multi-commodity cold storage business from April 2018.
•    Company’s financial data is not impressive.
•    Issue is priced very aggressively with P/E multiple of 36 plus.

ABOUT COMPANY:
Diksha Greens Ltd.(DGL)  (erstwhile Diksha Timber Pvt. Ltd. ) that started with the object of carrying business in trading of timber, wooden logs, sawn timber as well as manufacturing of veneer sheets. Later in the year 2006 the company obtained Importer-Exporter code (IEC) from Dy. Director General of Foreign Trade, Ministry of Commerce, Government of India and started importing the wooden logs and timber from countries such as Malaysia, Vietnam, and Burma in Asia, Nigeria, Ghana and Ivory Coast in Africa, Ecuador, Salvador, and Costa Rica in America, Solomon Island, Papua and Guinea etc. Since April 2018 it has also diversified its activities into multi commodity cold storage business as well.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its working capital and general corpus fund needs, DGL is coming out with a maiden IPO of 4440000 equity shares of Rs. 10 each at a fixed price of Rs. 30 per share to mobilize Rs. 13.32 cr. Issue opens for subscription on 26.11.18 and will close on 28.11.18. Minimum application is to be made for 4000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME.  Issue is solely lead managed by Finshore Management Services Ltd. while Cameo Corporate Services Ltd. is the registrar to the issue.

Issue constitutes 45% of the post issue paid up capital of the company. Having raided initial equity and some conversion at par in merger process, it raised further equity between March 2006 and June 2011 at a price of Rs. 100 per share. It has also issued bonus shares in the ratio of 10 for 1 in July 2018. Average cost of acquisition of shares by the promoters is Rs. 0.00, Rs, 0.87, Rs. 0.91 and Rs. 1.29 per share. Post issue its current paid up equity capital of Rs. 5.43 cr. will stand enhanced to Rs. 9.87 cr.

FINANCIAL PERFORMANCE:
On financial performance front, for last four fiscals, DGL has posted turnover/net profits of Rs. 54.25 cr. / Rs. 0.40cr. (FY15), Rs. 54.23 cr. / Rs. 0.46 cr. (FY16), Rs. 54.47 cr. / Rs. 0.64 cr. (FY17) and Rs. 41.83 cr. /Rs. 0.55 cr. (FY18). Thus while its top line remained static for FY15 to FY17, it posted a bit improved bottom lines. For FY18 it suffered a setback on both front. For FY17 its trade receivables reached all time high of Rs. 17.34 cr. For last five fiscals, it has posted an average EPS of Rs. 0.97 and an average RoNW of 5.03%. For first half of FY19 it has reported net profit of Rs. 0.41 cr. on a turnover of Rs. 12.56 cr. which is really surprising. For first half, its trade receivables are Rs. 6.02 cr. Issue is priced at a P/BV of 1.38 on the basis of its NAV of Rs. 21.71 as on 30.09.18 and at a P/BV of 1.20 on the basis of post issue NAV of Rs. 25.05. If we annualize latest earnings and attribute it to fully diluted equity post issue, then asking price is at a P/E of 36 plus making it aggressively priced offer.

COMPARE WITH LISTED PEERS:
As per offer documents it has shown Snowman Logi, Agri-Tech India and Greenply Ind as its listed peers but are not strictly comparable with the model of this company and is misleading.  They are currently trading at a P/Es of 139, 75 and 15 respectively (as on 21.11.18 closing).

LEAD MANAGER’S TRACK RECORDS:
On LM’s front, this is the 6th mandate from its stable in last two fiscals. Offer documents do not contain listing performance data of its last four listings. Out of last four listings two opened at a premium ranging from 0.05% to 0.2% and two opened at a discount ranging from 0.25% to 0.6% on the day of listings.


Conclusion / Investment Strategy

Company has shown average financial performance. Asking price is very aggressive.  There is no harm in giving this issue a miss. 

Review By Dilip Davda on Nov 21, 2018

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 prior to making any actual investment decisions, based on information published here. With entry barriers, SEBI wants only well informed investors to participate is such offers. With crazy recent listings, SME IPOs have started drawing attention of investors across the board. However, as SME issues have entry barriers and continued low preference from broking community, any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on information available as on date coupled with market perceptions. Author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).


About Dilip Davda

Dilip Davda, a freelance journalist

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

The Diksha Greens IPO Analysis helps you to understand about the company, offer detail, valuation, capital structure and financial performance. Our SEBI registered IPO Analysts tells you if Diksha Greens IPO worth investing. The Diksha Greens IPO Note sets the IPO expectations in systematic way which tells you if Diksha Greens IPO good to buy (good or bad / yes or no). The IPO Forecast tells you weather to invest in Diksha Greens IPO by providing IPO recommendations i.e. subscribe, avoid and neutral.


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