Jhandewalas Foods BSE SME IPO review (Apply)

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Review By Dilip Davda on December 22, 2017

Jhandewalas Foods Ltd. (JFL) is currently involved in manufacturing of ghee. It is also a manufacturer of mangodi on job work basis and the marketers of Poha, Saffron and Dalia. These products are marketed under own brand names 'Naman’s' and 'Godhenu'. JFL maintain hygienic norms and use good quality raw materials for manufacturing of products and follows a client-centric approach. The manufactured products are prepared completely under hygienic atmosphere by the professional makers. The company has been certified by Food Safety and Standards Authority of India (FSSAI) for the quality management systems of r Company in relation to its products. Currently, JFL has a one manufacturing unit, located at Jaipur, Rajasthan that is well equipped with machineries and other handling equipment to facilitate smooth manufacturing process. Along with this, the unit also has an in-house laboratory for testing the quality of products.

To part finance working capital and general corpus fund needs, JFL is coming out with a maiden IPO of 2910000 equity shares of Rs. 10 each at a fixed price of Rs. 55 per share to mobilize Rs.16.01 crore. Issue opens for subscription on 29.12.17 and will close on 04.01.18. Minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. Issue is solely lead managed by Guiness Corporate Advisors Pvt. Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Issue constitutes 28.36% of the post issue paid up capital of the company. The average cost of acquisition of shares by the promoters ranging from Rs. 3.73 to Rs. 10.55 per share. Having issued initial equity at par on incorporation and in March 2009, it raised fresh equity at a price of Rs. 60 to Rs. 1000 per share between December 2010 and March 2013. It has also issued bonus shares in the ratio of 4 for 1in March 2009, 1 for 1 in December 2010, 1 for 1 on 24.12.14 / 1 for 2 on 30.12.17 and 1.35 for 1 in October 2017. Post issue, its current paid up equity capital of Rs. 7.35 crore will stand enhanced to Rs. 10.26 crore.

On performance front, JFL has posted turnover/net profits of Rs. 141.51 cr. / Rs. 1.77 cr. (FY15), Rs. 142.75 cr. / Rs. 0.94 cr. (FY16), Rs. 148.66 cr. / Rs. 2.38 cr. (FY17). For FY it suffered a setback in bottom lines as per the general trends for the industry. For Q1 of the current fiscal, it has reported net profit of Rs. 0.59 cr. on a turnover of Rs. 33.77 cr. For last three fiscals it has posted an average EPS of Rs. 5.75 and average RoNW of 14.79% on an equity base of Rs. 3.13 crore. Issue is priced at a P/BV of 1.24 on the basis of NAV of Rs. 44.35 as on 30.06.17 and at a P/BV of 1.89 on the basis of post issue NAV of Rs. 29.12. If we annualize latest earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 24 against industry average of around 113. As per offer documents its peers Prabhat Dairy, Parag Milk and Hatsun Agro are trading at a P/E of around 130, 163 and 88 (with an average P/E of 127 - as on 22.12.17). For last three years JFL’s capacity utilization remained under 50% and it hopes to raise it with ease in working capital post issue (refer page 73 of the offer document).

On merchant banker’s front, this is the 22nd mandate from its stable in past three years. Out of last 10 listings, 3 opened at a discount, 2 at par and the rest at a premium ranging from 5% to 20% to offer price on the day of listing.

Conclusion: Investors may consider investment for medium to long term as food and dairy industry is poised for bright prospects ahead. (Subscribe).

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