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Evoq Remedies BSE SME IPO review (Avoid)

Review By Dilip Davda on Mar 12, 2022

•    ERL is in the trading of pharma products with third party deals.
•    It does not have its own production unit.
•    Its financial performance missing the match for the asking price.
•    Super earnings for FY21 onwards raises concern about sustainability.
•    There is no harm in ignoring this highly-priced IPO. 

ABOUT COMPANY:
Evoq Remedies Ltd.(ERL) though formed in the year 2010, it started its operations in 2018.  It is one of the recognized trading houses of pharmaceuticals raw materials products and chemicals. It deals with WHO-GMP registered entities. The company is trading in pharma raw materials, excipients, bulk drugs etc. 

The company operates on third party deals and has no assets of its own. As of December 31, 2021, it had 8 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its need for working capital (Rs. 6.44 cr.) and general corporate purpose (Rs. 2.33 cr.), ERL is coming out with its maiden IPO of 3600000 equity shares of Rs. 10 each at a fixed price of Rs. 27 per share to mobilize Rs. 9.72 cr. The issue opens for subscription on March 17, 2022, and will close on March 22, 2022. Minimum application is to be made for 4000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.47% of the post issue paid-up capital of the company. ERL will be spending Rs. 0.95 cr. for this IPO process. 

The issue is solely lead managed by Swastika Investmart Ltd., and Bigshare Services Pvt. Ltd. is the registrar to the issue. Sunflower Broking Pvt. Ltd. is the market maker for this company. 

Having issued initial equity capital at par value, ERL issued further equity at Rs. 28 per share in February 2022. It has also issued bonus shares in the ratio of 70 for 1 in December 2021. The average cost of acquisition of shares by the promoters is Rs. 6.57 and Rs. 9.33 per share.

Post this IPO, ERL's current paid-up equity capital of Rs. 10.00 cr. will stand enhanced to Rs. 13.60 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 36.72 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, ERL has posted turnover/net profits of Rs. 3.25 cr. / Rs. 0.01 cr. (FY19), Rs. 9.07 cr. / Rs. 0.003 cr. (FY20), Rs. 10.03 cr. / Rs. 0.71 cr. (FY21). For the FY22 till February 10, 2022, it has earned a net profit of Rs. 0.94 cr. on a turnover of Rs. 10.57 cr. The sudden boost in bottom lines since FY21 i.e. pre-IPO year and IPO year is surprising and raises concern. 

For the last three fiscals, ERL has posted an average EPS of Rs. 5.05 and an average RoNW of 57.41%. The issue is priced at a P/BV of 2.60 based on its NAV of Rs. 10.37 as of March 31, 2021, and at a P/BV of 1.66 based on its post-IPO NAV of Rs. 16.22.

If we annualize FY22 earnings and attribute it to the post IPO fully diluted equity, then the asking price is at a P/E of 33.75, thus this issue is aggressively priced. 

COMPARISON WITH LISTED PEERS:
As per offer documents, ERL has no listed peers to compare with. 

DIVIDEND POLICY:
The company has not paid any dividend for the reported period in the offer document. It will adopt a prudent dividend policy post listing, based on its financial performance and future prospects. 

MERCHANT BANKER'S TRACK RECORDS: 
After lying dormant for FY20 and FY21, this is the second mandate from Swastika Investmart in the last three fiscals (including the ongoing one). The only recent listing (Richa Info) happened at par value on the day of listing.  On the mandates till FY19, out of the last 10 listings, 3 opened at discount, 1 at par and the rest with premiums ranging from 1.67% to 20% on the day of listings. 


Conclusion / Investment Strategy

The company has posted a lacklustre performance so far. The sudden boost in bottom lines since FY21 onwards appears window dressing to pave the way for fancy pricing of this IPO. The sustainability of such performance going forward is a major concern. Based on its financial parameters, the issue is aggressively priced. It is operating on third party deals only and has no assets. Considering all these, there is no harm in ignoring this highly-priced IPO.

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on Mar 12, 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

Evoq Remedies IPO FAQs

  1. 1. Why Evoq Remedies IPO?

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

  2. 2. How is Evoq Remedies IPO?

    Read the Evoq Remedies IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. Evoq Remedies IPO what should investors do?

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

  4. 4. Is Evoq Remedies IPO good?

    Our recommendation for Evoq Remedies IPO is to avoid.

  5. 5. Is Evoq Remedies IPO worth Investing?

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

  6. 6. When will Evoq Remedies IPO allotment status?

    The Evoq Remedies IPO allotment status will be available on or around Mar 25, 2022. The allotted shares will be credited in demat account by Mar 29, 2022. Visit Evoq Remedies IPO allotment status to check.

  7. 7. When will Evoq Remedies IPO list?

    The Evoq Remedies IPO will list on Wednesday, March 30, 2022, at BSE SME.