Indong Tea BSE SME IPO review (Avoid)

• IPO Details
• Stock Price
• Docs
  • RHP
  • DRHP
• Reviews
• Subscription
• Calculator
• News
• GMP
• Allotment
• BoA
• Messages

Review By Dilip Davda on February 7, 2023

•    ITCL is in the tea plantations with average performance.
•    Listed parent company is faring badly with a poor track record.
•    It has modified a bit its objects of the issue if compared with its Sept.22 documents.
•    Results for H1 of FY23 appear to have been window dressing to suit the asking price.
•    There is no harm in skipping this high-risk bet. 

PREFACE:
The company filed its draft prospectus in August 2022 for its maiden IPO and also planned entry in the month of September 2022, but the issue finally stood withdrawn just before opening. Now it is planning for a second time to launch the IPO. Its restated financial data for H1 of FY23 appears as a window dressing to get the fancy valuation. 

ABOUT COMPANY:
Indong Tea Company Ltd. (ITCL) is an Asian group company. Parent company Asian Tea & Exports Ltd. is already a listed entity that planned delisting in September 2001 but continues to remain listed and issued right shares in November 2021. It is faring poorly with thin volumes. It has no dividend track record either.    

ITCL is engaged in Tea Plantation & Manufacturing of CTC Tea at Indong Tea Estate situated in Jalpaiguri District of West Bengal. The Indong Tea Estate is spread over an area of 740.38 Hectares which comprises of Tea Plantation, Tea Factory, Withering Trough House, Officer's Bungalows, Staff Quarters, Labour Quarters, Pump House, General Stores, Dairy Farm etc. It currently employs 1346 employees on its payroll (including 158 temporary employees).

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its need for refurbishing its existing tea plantations (Rs. 6.32 cr.), additional plant and machinery for existing plantations (Rs. 2.94 cr.), working capital (Rs. 2.25 cr.), and general corporate purposes (Rs. 1.00 cr.), ITCL is coming out with a maiden IPO of 5004000 equity shares of Rs. 10 each at a fixed price of Rs. 26 per share to mobilize Rs. 13.01 cr. The issue opens for subscription on February 09, 2023, and will close on February 13, 2023. The 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 33.36% of the post-IPO paid-up equity capital of the company. ITCL is spending Rs. 0.50 cr. for this IPO process.

 Finshore Management Services Ltd. is the sole lead manager for the IPO, and Cameo Corporate Services Ltd. is the registrar of the issue. Nikunj Stock Brokers Ltd. is the market maker for the company. 

After issuing initial equity shares at par, the company converted loans into equity at a price of Rs. 33 per share in January 2022. The average cost of acquisition of shares by the promoters is Rs. 8.24, Rs. 14.48, and Rs. 23.24 per share. 

Post this IPO, ITCL's paid-up equity capital of Rs. 10.00 cr. will stand enhanced to Rs. 15.00 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 39.00 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, ITCL has reported a turnover/net profit - (loss) of Rs. 16.73 cr. / Rs. - (1.21) cr. (FY20), Rs. 23.13 cr. / Rs. 1.28 cr. (FY21), and Rs. 19.93 cr. / Rs. 1.32 cr. (FY22). For H1 of FY23, it earned a net profit of Rs. 2.05 cr. on a turnover of Rs. 13.24 cr. There appears to be a window dressing to get the fancy valuations. 

For the last three fiscals, ITCL has posted an average EPS of Rs. 1.50 and an average RoNW of 2.54%. The issue is priced at a P/BV of 2.43 based on its NAV of Rs. 10.69 as of September 30, 2022, and at a P/BV of 1.65 based on its post-IPO NAV of Rs. 15.79 per share. 

If we attribute FY23 earnings to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 9.52. And based on its FY22 earnings it comes at a P/E of 29.54. Thus the issue is aggressively priced based on FY22 data but appears fully priced based on FY23 earnings. The sustainability of earnings shown for H1 of FY23 is a major concern. 

COMPARISON WITH LISTED PEERS:
As per the offer documents, ITCL has shown Tata Consumer Products, Goodricke Group, Dhunseri Tea, and Neelamalai Agro as their listed peers. They are currently quoting at a P/E of 74.67, - 34.28, - 2.08, and 58.65 (as of February 07, 2023).  However, they are not truly comparable on an apple-to-apple basis. The comparison with giants in the segment is really surprising. 

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 IPO, based on its financial performance and future prospects. 

MERCHANT BANKER'S TRACK RECORD:
This is the 33rd mandate from Finshore Management in the last five fiscals (including the ongoing one). Out of the last 10 listings, 2 opened at discount, 1 at par, and the rest with premiums ranging from 0.91% to 150.00% on the day of listing.

Indong Tea Company IPO FAQs