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MRP Agro BSE SME IPO review (Avoid)

Review By Dilip Davda on Feb 4, 2021

•    The company is engaged in the business of trading food grains, coal and fly-ash.
•    It has shown super-profits for H1 FY21 against FY19 and FY20 earnings.
•    The issue is priced at a P/E of above 41 with the super performance of FY21 H1.
•    The segment is fragmented and is a highly competitive one.

PREFACE:
While we have seen secondary market galloping with a new milestone making history for the last three months, the primary market witnessed some activities for Main Board IPOs and few NCD and Rights issues during this period. However, we marked dry spell as far as SME IPOs are concerned as for NSE SME Listing we have seen the last IPO on 9th October 2020 from Bodhi Tree and for BSE SME Listing last IPO was on 18th November from Net Pix Shorts (Startup). For this scene, the structured process of IPOs and the poor faring of recent SME listings after the initial game have been attributed by the SME market operators.

ABOUT COMPANY:
MRP Agro Ltd. (MAL) is mainly engaged in the business of trading in food grains, coal and fly-ash including import and export of such products. The company works on B2 B business model.  

ISSUE DETAILS/CAPITAL HISTORY:
To meet its plans for working capital (Rs. 2.50 cr.) and general corpus fund (Rs. 0.53 cr.), MAL  is coming out with a maiden IPO of 810000 equity shares of Rs.10 each at a fixed price of Rs. 40 per share to mobilize Rs. 3.24 cr. The issue opens for subscription on February 08, 2021, and will close on February 10, 2021. Minimum application is to be made for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME platform.

The issue constitutes 27.19% of the post issue paid-up capital of the company. The company will be spending Rs. 0.21 cr. for this IPO process.

The issue is solely lead managed by Beeline Broking Ltd., while Skyline Financial Services Pvt. Ltd. is the registrar to the issue. Nikunj Stock Brokers Ltd. is acting as a Market Maker for this company.

Having issued initial equity at par, the company issued rights shares at a price of Rs. 25 and Rs. 26.64 between October 2019 and May 2020. It has also issued bonus shares in the ratio of 4 for 10 in September 2020. The average cost of acquisition of shares by the promoters is Rs. 13.66, Rs. 14.36 and Rs. 18.71 per share. Post issue, MAL's current paid-up equity capital of Rs. 2.17 cr. will stand enhanced to Rs. 2.98 cr. With this IPO, the company is looking for a market cap of Rs. 11.92 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last two fiscals, MAL has posted turnover/net profits of Rs. 18.73 cr. / Rs. 0.12 cr. (FY19) and Rs. 36.35 cr. / Rs. 0.19 cr. (FY20). For the first six months of FY21 ended on September 30, 2020, it has reported a net profit of Rs. 0.14 cr. on a turnover of Rs. 8.57 cr.

For the last two fiscals, the company has posted an average EPS of Rs. 2.88 and an average RoNW of 18.27%. The issue is priced at a P/BV of 2.18 based on its NAV of Rs. 18.33 as on September 30, 2020, and at a P/BV of 1.65 on its post-issue NAV of Rs. 24.22. Thus the issue is fully priced on these parameters. Its margins were just around 0.6% for FY19 and FY20 and are boosted to 1.66% for the first half of current fiscal i.e. IPO year (amidst lockdown for a major part of the period) which raises eyebrows.

If we annualize its super earnings of FY21 H1 and attribute it on fully diluted post issue equity capital then asking price is at a P/E of around 41.6 thus making it exorbitantly priced. Sustainability of such margins going forward is a major concern.  

COMPARISION WITH LISTED PEERS:
As per offer documents, MAL has no listed peers to compare with.

MERCHANT BANKER'S TRACK RECORDS:
On merchant banker's performance front, this is the 7th mandate from its stable in the last three fiscals (including the ongoing one). Out of the last six listings, one opened at par while the rest at a premium of ranging from 1.37% to 10% on the day of listing.


Conclusion / Investment Strategy

MAL is in the business of trading which is highly competitive with fragmented unorganized vendors. The issue is at a Maximized Retail Price (MRP) with higher P/E. The company has low bargaining power with customers amidst competition from local and big players and is fully dependent on suppliers for quality products. Considering all these, investors may give a “MISS” to this highly-priced offer.

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on Feb 4, 2021

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

MRP Agro IPO FAQs

  1. 1. Why MRP Agro IPO?

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

  2. 2. How is MRP Agro IPO?

    Read the MRP Agro IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. MRP Agro IPO what should investors do?

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

  4. 4. Is MRP Agro IPO good?

    Our recommendation for MRP Agro IPO is to avoid.

  5. 5. Is MRP Agro IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to avoid the MRP Agro IPO.

  6. 6. When will MRP Agro IPO allotment status?

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

  7. 7. When will MRP Agro IPO list?

    The MRP Agro IPO will list on Thursday, February 18, 2021, at BSE SME.