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Megastar Foods BSE SME IPO review (May apply)

Review By Dilip Davda on May 11, 2018

Megastar Foods Ltd. (MFL) is engaged in the manufacturing of food based products such as wheat flour, organic wheat flour products and allied flour products. Basically, company produces food products related to wheat i.e. Atta-wheat flour products, Maida-Fine wheat flour products, Suji/Rawa-Semolina, Chokar/Wheat Bran, Organic Atta, Organic whole Wheat flour and Organic wheat flour etc. MFL is an FSSC 22000 certified company for food safety systems including ISO 22000:2005, ISO 22002-1:2009 and additional FSSC 22000 requirements in respect of Processing (Pre Cleaning, Cleaning, milling, Sifting) of Wheat products like Atta, Maida, Suzi, Bran and its packaging in HDPE laminated bags and Poly Pouch bags by Intertek Certification Limited, United Kingdom. MFL is having FSSAI license, Organic Certificate for in accordance with the requirements of India’s National Programme for Organic Production Standards by the Ecocert India Pvt. Limited, HALAL certified by HALAL India Pvt. Ltd etc. Company is having state of the art modern machinery in its wheat processing plant in Punjab, India, with an installed capacity of 81000 MT per year. At present MFL is catering majorly to MNC’s in India and also exporting some of its products to United Nations Organization, Europe, United States & Middle East.

To part finance its working capital and general corporate fund needs,  MFL is coming out with a maiden IPO of 2680000 equity shares of Rs. 10 each at a fixed price of Rs. 30 per share to mobilize Rs. 8.04 crore. Issue opens for subscription on 14.05.18 and will close on 16.05.18. Minimum application is to be made for 4000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. Issue is solely lead managed by Swastika Investmart Ltd. and Skyline Financial Services Pvt. Ltd. is the registrar to the issue. Issue constitutes 27.06% of the post issue paid up capital of the company. Entire equity is issued at par by the company so far and has also issued bonus shares in the ratio of 21 for 100 in March 2018. Average cost of acquisition of shares by the promoters is Rs. 7.65 and Rs. 8.87 per share. Post issue, its current paid up equity capital of Rs. 7.22 cr. will stand enhanced to Rs. 9.90 cr.

On performance front, for last four fiscals, MFL has posted turnover/net profits of Rs. 7.85 cr. / Rs. –(0.001) cr. (FY14), Rs. 44.50 cr. / Rs. – (0.28) cr. (FY15), Rs. 78.04 cr. / Rs. 0.59 cr. (FY16) and Rs. 97.76 cr. / Rs. 1.06 cr. (FY17). For first nine months ended on 31.12.17 of FY18 it has earned net profit of Rs. 0.87 cr.   on a turnover of Rs. 78.37 cr. For last three fiscals it has posted an average EPS of Rs. 1 per share and an average RoNW of 9.52%. Issue is priced at a P/BV of 2.18 on the basis of NAV of Rs. 13.75 as on 31.12.17 and at a P/BV of 1.83 on the basis of post issue NAV of Rs. 16.40. If we annualize latest earnings and attribute it on fully diluted equity post issue then asking price is at a P/ E of around 25 plus against industry average of 38. As per offer documents it has shown DFM Food as its listed peer which is trading at a P/E of around 65 (as on 11.05.18). Thus issue appears reasonably priced.

On merchant banker’s front, this is 14th mandate from its stable in last three fiscals. Out of last 10 listings, 2 opened at a discount to offer price and the rest with a premium ranging from 2.8% to 20% on the day of listing.


Conclusion / Investment Strategy

Considering its track record so far and reasonable pricing, investors may park funds for long term.

Review By Dilip Davda on May 11, 2018

Review Author

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. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here. With entry barriers, SEBI wants only well-informed investors to participate in such offers. With crazy listings in the past, SME IPOs drew the attention of investors across the board. 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 own risk. The above information is based on information available as on date coupled with market perceptions. The Author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).


About Dilip Davda

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.

Email: dilip_davda@rediffmail.com

Megastar Foods IPO FAQs

  1. 1. Why Megastar Foods IPO?

    The initial public offer (IPO) of Megastar Foods Limited offers an early investment opportunity in Megastar Foods Limited. A stock market investor can buy Megastar Foods IPO shares by applying in IPO before Megastar Foods Limited shares get listed at the stock exchanges. An investor could invest in Megastar Foods IPO for short term listing gain or a long term.

  2. 2. How is Megastar Foods IPO?

    Read the Megastar Foods IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. Megastar Foods IPO what should investors do?

    Megastar Foods IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the Megastar Foods IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.

  4. 4. Is Megastar Foods IPO good?

    Our recommendation for Megastar Foods IPO is to subscribe for long term.

  5. 5. Is Megastar Foods IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to subscribe for long term to the Megastar Foods IPO.

  6. 6. When will Megastar Foods IPO allotment status?

    The Megastar Foods IPO allotment status will be available on or around [.]. The allotted shares will be credited in demat account by [.]. Visit Megastar Foods IPO allotment status to check.

  7. 7. When will Megastar Foods IPO list?

    The Megastar Foods IPO will list on Thursday, May 24, 2018, at BSE SME.