ICL Organic Dairy BSE SME IPO review (Avoid)

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Review By Dilip Davda on January 29, 2020

•    IODPL is a local player in the dairy farming business
•    Financial performance has no match with the asking price.
•    Its high working capital intensive biz with a cut throat competition.
•    Lead Manager has poor track records.

ABOUT THE COMPANY:
ICL Organic Dairy Products Ltd. (IODPL), was till 2019 engaged in dairy farming with the main object to produce and extract milk from cow and distributing the same raw milk extracted from the cow and supplying it to Sweet Shops, Retailers, different establishments and households. ICL trade mark is owned by the group company. According to company management, it is in working capital intensive business and has not taken any loan so far from banks for the said purpose.

ISSUE DETAILS/CAPITAL HISTORY:To part finance its plans for working capital needs (Rs. 3.48 cr.) and general corpus fund needs (Rs. 0.25 cr.), IODPL is coming out with a maiden IPO of 2040000 equity shares of Rs. 10 each at a fixed price of Rs. 20 per share to mobilize Rs. 4.08 cr. The issue opens for subscription on 31.01.20 and will close on 04.02.20. Minimum application is to be made for 6000 shares and in multiples thereon, thereafter. This issue is solely lead managed by Finshore Management Services Ltd while Cameo Corporate Services Ltd. is the registrar to the issue. Beeline Broking Ltd. is the market maker for this issue. Post allotment, shares will be listed on BSE SME. The issue constitutes 33.99% of the post issue paid-up equity capital. The company is spending Rs. 0.35 cr. for this issue process.

Having issued initial equity at par, IODPL converted/issued further equity shares at a fix price of Rs. 20 per share between March 2019 and November 2019. It has also issued bonus shares in the ratio of 1 share for every 2 shares held in July 2019. The average cost of acquisition of shares by the promoters is Rs. 15.34 and Rs. 17.23 per share.

Post issue IODPL's current paid-up equity capital of Rs. 3.96 cr. will stand enhanced to Rs. 6.00 cr. The company is mulling market cap of Rs. 12.00 cr. with this issue.

FINANCIAL PERFORMANCE:
For the last three fiscals, IODPL has posted turnover/net profits of Rs. 2.53 cr. / Rs. 0.05 cr. (FY17), Rs. 12.07 cr. / Rs. 0.35 cr. (FY18) and Rs. 15.73 cr. / Rs. 0.28 cr. (FY19). For the first four months ended on 31.07.19 of FY20, it has earned a net profit of Rs. 0.05 cr. on a turnover of Rs. 2.23 cr.

For the last three fiscals, IODPL has posted an average EPS of Rs. 85.30 and an average RoNW of 39.25%. This data is based on old equity base as on 31.07.19. The issue is priced at a P/BV of 1.12 on the basis of its NAV of Rs. 17.79 as on 31.07.19 and at a P/BV of 1.03 based on post issue NAV of Rs. 19.38.

While its top line has shown growth, its bottom line witnessed inconsistency. It is in the high volume/low margin business segment with tough competition from many big players. This industry is highly fragmented.
If we annualize the latest earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 80. Thus the issue is aggressively priced against industry average of 29.5.

COMPARISION WITH LISTED PEERS:
As per offer documents, IODPL has shown Prabhat Dairy, Heritage Foods, Parag Milk and Umang Dairy as its listed peers. They are currently trading at a P/Es of around 134.68, 21.64, 10.54 and 16.91 (as on 29.01.20). However, they are not strictly comparable.

PERFORMANCE OF LEAD MANAGER:
On merchant banker's front, this is the 15th mandate from its stable in the last three fiscals (including the ongoing). Out of the last 10 listings, three issues opened at a discount, one at par and the rest with a premium ranging from 1.63% to 20.67% on the day of listings. IPO of Alumilite Arch was withdrawn post-closure of the issue. Thus it has poor track records.

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