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Dipna Pharmachem BSE SME IPO review (Avoid)

Review By Dilip Davda on Aug 22, 2022

•    DPL is just a trader/distributor in pharma raw materials.  
•    It marked dismal financial performance for FY20 and FY21.
•    Super financial performance of FY22 (pre-IPO year) is a bit surprising.
•    The company operates in a highly competitive and fragmented segment. 
•    There is no harm in ignoring this pricy bet. 

ABOUT COMPANY: 
Dipna Pharmachem Ltd. (DPL) is engaged in the trading and distribution of a wide range of pharmaceutical raw materials which are also known as APIs (Active Pharmaceutical Ingredients), Excipient, and chemical formulation products. Presently its product portfolio comprises 61 AIPs and AIPs intermediates such as Cephalosporins, Cardiovascular, Anti - Bacteria, Quinolones, Veterinary, Anti - Virus, Anti - Inflammatory, Neuropsychiatry, Steroid Hormone, etc.

Being a trading and distribution company, it has a pan-India market for products. The Company also started selling chemicals on a commission basis in the Financial year 2022. As of April 30, 2022, it had 13 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY: 
To part finance its needs for working capital (Rs. 11.10 cr.) and general corporate purposes (Rs. 3.65 cr.), DPL is coming out with a maiden IPO of 4002000 equity shares of Rs. 10 each at a fixed price of Rs. 38 per share to mobilize Rs. 15.21 cr. The issue opens for subscription on August 25, 2022, and will close on August 30, 2022. The minimum application to be made is for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 33.43% of the post-issue paid-up equity capital of the company. DPL is spending Rs. 0.46 cr. for this IPO process. 

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

Having issued initial equity at par, DPL issued further equity shares in the price range of Rs. 40 - Rs. 100 between January 2016 and April 2022. It has also issued bonus shares in the ratio of 3 for 1 in April 2022 and 2 for 1 in May 2022. The average cost of the acquisition of shares by the promoters is Rs. 8.46 per share. 

Post-IPO, DPL's current paid-up equity capital of Rs. 7.97 cr. will stand enhanced to Rs. 11.97 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 45.49 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, for the last three fiscals, DPL has reported turnover/net profits of Rs. 30.55 cr. / Rs. 0.06 cr. (FY20), Rs. 31.02 cr. / Rs. 0.02 cr. (FY21) and Rs. 72.77 cr. / Rs. 1.17 cr. (FY22). The quantum jump in FY22 performance appears to be the window dressing. 

For the last three fiscals, DPL has posted an average EPS of Rs. 0.75 and an average RoNW of 36.77%. The issue is priced at a P/BV of 3.68 based on its NAV of Rs. 10.34 as of March 31, 2022, and at a P/BV of 1.94 based on its post-IPO NAV of Rs. 19.59 per share. 

If we attribute the super earnings of FY22 on post IPO fully diluted equity capital, then the asking price is at a P/E of 39+, making it an aggressively priced bet. Since it is operating in a highly competitive and fragmented segment, the sustainability of such performance going forward is a major concern.  

DIVIDEND POLICY: 
The company has not declared/paid any dividend for the reported periods of the offer document. 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, DPL has shown Earum Pharma and A-1 Acid as its listed peers. They are currently trading at a P/E of 2.63 and 41.75 (as of August 22, 2022). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD: 
This is the 4th mandate from Interactive Financial in the last two fiscals (including the ongoing one). Out of the last 3 listings, 1 opened at a discount and the rest two with premiums ranging from 0.08% to 2.22% on the day of listing. Thus it has posted an average performance so far.


Conclusion / Investment Strategy

After showing dismal performances for FY20 and FY21, it marked a bumper turnover and net profits, which appears to be a window dressing in a pre-IPO year. DPL is just a trader in pharmachem. Since it is operating in a highly competitive and fragmented segment, the sustainability of such performance is a major concern. Based on such super profits also the issue is aggressively priced. There is no harm in ignoring such a pricy bet.

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on Aug 22, 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

Dipna Pharmachem IPO FAQs

  1. 1. Why Dipna Pharmachem IPO?

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

  2. 2. How is Dipna Pharmachem IPO?

    Read the Dipna Pharmachem IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. Dipna Pharmachem IPO what should investors do?

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

  4. 4. Is Dipna Pharmachem IPO good?

    Our recommendation for Dipna Pharmachem IPO is to avoid.

  5. 5. Is Dipna Pharmachem IPO worth Investing?

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

  6. 6. When will Dipna Pharmachem IPO allotment status?

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

  7. 7. When will Dipna Pharmachem IPO list?

    The Dipna Pharmachem IPO will list on Thursday, September 8, 2022, at BSE SME.

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