Lorenzini Apparels BSE SME IPO Review (May apply)

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Review By Dilip Davda on January 27, 2018

Lorenzini Apparels Ltd. (LAL) is engaged into the business of manufacturing, designing and marketing of readymade garments offering diverse range of formal, semi-formal and casual wear for men and casual wear for women. Company serves its customers through the channels of retail and e-commerce. It also outsource the garments manufacturing on job work basis from third party contractors from time to time and provides the technical specifications such as designs, pattern, quality, fabric etc. to them who, based on LAL’s specifications, procure the requisite raw materials at their own costs and begin the manufacturing process. The products are sold under its own brand name “Monteil & Munero” and “Monteil” “Calgari” through exclusive stores/outlets located at several places of Delhi, Haryana and Uttar Pradesh.

To part finance its working capital and general corpus fund needs, LAL is coming out with a maiden IPO of 4470000 equity shares of Rs. 10 each at par to mobilize Rs. 4.47 crore. Issue opens for subscription on 31.01.18 and will close on 06.02.18 Minimum application is to be made for 10000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. Issue is solely lead managed by Fedex Securities Ltd. and Skyline Financial Services Pvt. Ltd. is the registrar to the issue. While filing draft prospectus, lead manager was Guiness Corporate Advisors Pvt. Ltd. Thus change in lead manager for final documents is surprising one. Issue constitutes 44.09% of the post issue paid up capital of the company. Having issued initial equity at par, it raised further equity in the price range of Rs. 10.60 to Rs. 13.50 between March 2017 and July 2017 and has also issued bonus shares in the ratio of 44 for 1 in February 2017 and 3 for 10 in June 2017. Average cost of acquisition of shares by the promoters is Rs. 1.56 and Rs. 10.38 per share. Post issue, its current paid up equity capital of Rs.5.67 crore will stand enhanced to Rs.10.14 crore.

On performance front, LAL has posted turnover/net profits of Rs. 11.60 cr. / Rs. 0.12 cr. (FY14),Rs. 14.16 cr. / Rs. 0.06 cr. (FY15), Rs. 12.11 cr. / Rs. -0.03 cr. (FY16) and Rs. 16.45 cr. / Rs. 0.15 cr. (FY17). Thus it has marked inconsistency in its performances. For first four months of the current fiscal ended on 31.07.17, it has earned net profit of Rs. 0.28 crore on a turnover of Rs. 6.63 crore. Thus sudden jump in top and bottom lines in last sixteen months is a bit surprising. Company has given details only for first four months of the current fiscal instead of first half. Issue at par is at a P/BV below 1. For last three fiscals it has posted an average EPS of Rs. 0.79 and an average RoNW of 2.04%. If we annualize latest earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 12 plus against its peers Cantabil, Monte Carlo and Mandhana are trading at a P/Es ranging from 16 to 25.

On merchant banker’s front, this is the 2nd mandate from its stable in last three fiscals and the only listing took place so far that of Shree Ganesh Remedies opened at offer price and closed at a discount of 18% on listing date.

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