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Review By Dilip Davda on November 11, 2019
• MGEL is mainly engaged in the business of Castor Oil and Cotton Bales
• It is also trading in Castor Seeds and Raw Cotton.
• The company has posted a higher turnover/profits in the pre-IPO/IPO year.
• The company's business is seasonal and depends on climatic conditions.
• Inventory holding for the last 15 months is very high and raises concern.
Mangalam Global Enterprise Ltd. (MGEL) is mainly engaged in the business of manufacturing of refined castor oil (First Stage Grade - F.S.G.), Castor De-oiled cake and High Protein Castor De-oiled cake for domestic and international markets. It has also diversified in the manufacturing of cotton bales (Lint Cotton) and Delineate Cotton Seeds. Earlier the company was engaged in the trading activities. Currently, it trades in Castor Seeds and Raw Cotton. Cotton bales manufacturing activities started in the year 2018. It has recently started a business of wholesale trading in Singapore through its wholly-owned subsidiary.
To part finance its needs for working capital (Rs. 17.00 cr.) and general corpus fund (Rs. 4.10 cr.), MGEL is coming out with a maiden IPO of 4230000 equity shares of Rs. 10 each at a fixed price of Rs. 51 per share to mobilize Rs. 21.57 cr. The issue opens for subscription on 15.11.19 and will close on 20.11.19. Minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.34% of the post issue paid-up capital of the company. MGEL is spending Rs. 0.47 cr. for the entire proceeds of this IPO.
The issue is solely lead managed by Pantomath Capital Advisor Pvt. Ltd. and Link Intime India Pvt. Ltd. is the registrar to the issue. Pantomath Stock Brokers Pvt. Ltd. is the market maker for this issue.
Having issued initial equity at par, MGEL raised further equity in the price range of Rs. 28 to Rs. 140 between March 2018 and October 2019. It has also issued bonus shares in the ratio of 4 shares for every 1 share held in September 2019. The average cost of acquisition of shares by the promoters is Rs. 23.21, Rs. 24.46 and Rs. 24.66 per share. Post issue, MGEL's paid-up capital will stand enhanced from Rs. 11.83 cr. to Rs. 16.06 cr.
On a standalone basis, for the last three fiscals, MGEL has posted turnover/net profits of Rs. 2.69 cr. / Rs. 0.09 cr. (FY17), Rs. 26.90 cr./ Rs. 0.26 cr. (FY18) and Rs. 330.04 cr. / Rs. 2.17 cr. (FY19). For Q1 of FY20, it has clocked in the net profit of Rs. 1.05 cr. on a turnover of Rs. 145.93 cr.
On a consolidated basis, for FY19 it has posted a turnover of Rs. 389.95 cr. with a net profit of Rs. 2.27 cr. For Q1 of FY20, it has earned a net profit of Rs. 1.02 cr. on a turnover of Rs. 146.50 cr. The company is in the high volume low margin business having high competition. Super top and bottom line in pre-IPO and IPO year raise concern. On a consolidated basis, it's manufacturing and trading ratio was 56% and 44% for FY19 and 96% and 4% for Q1 of FY20. For the said periods, exports volume in the total revenues was 0.96% and 3.18% respectively.
For the last 39 months on a standalone basis, MGEL has posted an average EPS of Rs. 1.21 and an average RoNW of 23.14%. On a consolidated basis for the FY19 and Q1 of FY20, it has posted an EPS of Rs. 2.31 and Rs. 0.88 respectively. For the said periods on a consolidated basis, it has posted RoNW of 6.62% and 2.89% respectively. The issue is priced at a P/BV of 1.68 on the basis of its consolidated NAV of Rs. 30.41 as on 30.06.19 and at a P/BV of 1.44 on the basis of post-issue NAV of Rs. 35.45. If we annualize consolidated Q1 earnings and attribute it to post issue paid-up equity capital then asking price is at a P/E of 20 plus against the industry average of 22.
As on 30.06.19, its inventories were 69.57% of its total current asset against 41.50% as on 31.03.19, which appears worrisome.
As per offer documents, MGEL has shown Gokul Agro Resources and Jayant Agro Organics as its listed peers. They are currently trading at a P/E of 25.4 and 10.4 (as on 11.11.19). However, they are not strictly comparable.
On merchant banker's front, this is the 59th mandate from its stable in the last three fiscals (including the ongoing). Out of the last 10 listings, 1 issue opened at a discount (Suich Ind.) and the rest with premiums ranging from 1.25% to 11.11% on the day of listings.
MGEL has nothing to do with any currently listed company with Mangalam in its name. MGEL business model is seasonal and carrying a risk of natural calamities. It carries higher inventory in relation to its total current assets that is worrisome. Following super earnings in pre-IPO and IPO year, the issue appears fully priced. Sustainability of such performance raises concern. Considering all these, cash surplus risk savvy investors may consider investment at their own risks.
Date: 15th Nov 2019
- The company has posted a higher turnover/profits in the pre-IPO/IPO year
The Company has been engaged into trading activities till FY 2017-18 since incorporation. The Company commenced its manufacturing operations in the FY 2018-19. The commencement of manufacturing activities boosted the revenues and profits of the company for FY 2018-19 and for the period ended on June 30, 2019.
The future prospects of the manufacturing units are as follows:
Manufacturing Unit I - Cotton Unit
Company manufactures Cotton Bales and Cotton Seeds at Manufacturing Unit I which is known as Cotton Unit. Ginning is the first process involved in processing cotton. Ginning mill separates cotton fibres from the seed bolls. These separated cotton lint is the raw material for spinning operations, where lint is converted to yarn. Company produces quality cotton in fully automated Ginning and Pressing Unit located at Harij, Gujarat. The said plant is equipped with latest quality 42 Ginning and Pressing machineries capable of processing 150 MT of cotton per day.
Raw Cotton is the major raw material required in the manufacturing of Cotton Bales and Cotton Seeds. The availability of raw cotton is seasonal in nature. Company sources required raw material from domestic market. It supplies Cotton bales and Cotton Seeds to Brokers, Merchant Exporters, Distributors related textiles and in certain cases to the Textile Manufacturers. The manufacturing operations at Unit I started in last quarter of FY 2018-19 itself. The harvest season of raw cotton (which is a major raw material for Unit-1) has started. With timely availability of raw materials, Company is intending to utilise its installed capacity to the optimum at Unit I in FY 2019-20 and going forward.
Manufacturing Unit II - Castor Oil Unit
Company manufactures Refined Castor Oil First Stage Grade (F.S.G.), Castor De-Oiled Cake and High Protein Castor De-Oiled Cake at manufacturing unit - Unit II situated at Harij, Gujarat. This manufacturing facility is installed with high end automated machineries having crushing and processing capacity of 450 MT Castor Seeds per day. The said manufacturing unit is equipped with installed capacity of producing 225 MT Castor Refined Oil (F.S.G.) per day and 220 MT Castor De- Oiled Cake per day. It also has solvent capacity of 200 MT.
The management's prime focus is on the Castor Processing activities. The Manufacturing operations at Unit II has started in the month of October 2018. Company is constantly working on improving the productivity in the said unit. We have started manufacturing high Protein De-oiled cake at the said unit from April 2019; which derives higher margins. Company is intending to utilise its installed capacity to the optimum at Unit II in FY 2019-20 and going forward.
Manufacturing Unit III - Castor Oil Unit
The castor processing activities derive higher returns compared to other agro commodities. The existing castor processing facility is operating at approx. 70% of its Installed Capacity. The company is constantly working on expanding its foot print in the Castor processing industry and in this regards Management has leased an entire Unit with well-equipped plant and machineries. The commercial production is expected to be commenced in FY 2019-20.
- The company's business is seasonal and depends on climatic conditions
Raw Cotton and Castor Seeds are the major raw materials required in the manufacturing process of the company. The availability of said raw materials is seasonal in nature. Company sources required raw material from domestic market well in advance during the harvest period. The company has an in-house storage facility for storage of raw material. The raw material being agro commodity comes with an inherent risk of climatic conditions but the locations of the manufacturing units of the company is a positive factor for availment of quality raw material in timely manner.
- Inventory holding for the last 15 months is very high and raises concern
The company commenced its manufacturing operations in from October 2018. Before commencing manufacturing operations it was engaged in trading activities. Raw Cotton and Castor Seeds are the major raw materials required in the manufacturing process of the company. The said raw materials are available in harvest period. Company procures the Raw Materials in First Two Quarters of the year where as the major sale of finished products of both the Raw Materials is achieved in Last Two Quarters. The holding period of inventory is high due to procurement of Raw materials which will be utilised in the subsequent period of the financial year. It is the general practice of the industry to procure the raw materials in the harvest period to reduce raw material consumption cost and better profitability.
Review By Dilip Davda on November 11, 2019
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. My reviews do not cover GMP market and operators game plans. Readers must consult a qualified financial advisor before making any actual investment decisions, based the on information published here. With entry barriers, SEBI wants only well-informed investors to participate in such offers. With crazy listings in the recent past, SME IPOs drew the attention of investors across the board and lead to seer madness. 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 their own risk. The above information is based on information available as of date coupled with market perceptions. The Author has no plans to invest in this offer.
About 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.
(Dilip Davda -SEBI registered Research Analyst-Mumbai,
Registration no. INH000003127 (Perpetual)
Email id: dilip_davda@rediffmail.com ).
The initial public offer (IPO) of Mangalam Global Enterprise Limited offers an early investment opportunity in Mangalam Global Enterprise Limited. A stock market investor can buy Mangalam Global IPO shares by applying in IPO before Mangalam Global Enterprise Limited shares get listed at the stock exchanges. An investor could invest in Mangalam Global IPO for short term listing gain or a long term.
Read the Mangalam Global IPO recommendations by the leading analyst and leading stock brokers.
Mangalam Global IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the Mangalam Global IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.
Our recommendation for Mangalam Global IPO is to subscribe for long term.
As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to subscribe for long term to the Mangalam Global IPO.
The Mangalam Global IPO allotment status will be available on or around November 25, 2019. The allotted shares will be credited in demat account by November 27, 2019. Visit Mangalam Global IPO allotment status to check.
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