Diksha Greens BSE SME IPO review (Avoid)

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Review By Dilip Davda on November 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.

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