Omfurn India NSE SME FPO review (May apply)

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Review By Dilip Davda on March 17, 2024

•    OIL is engaged in the manufacturing and marketing of pre-finished wooden doors and modular furniture.
•    After setback for FY21 due to pandemic, it marked growth in top and bottom lines.
•    The sudden boost in its top and bottom lines from FY23 onward raises eyebrows.
•    It is operating in a highly competitive and fragmented segment.
•    Based on FY24 annualized super earnings, the issue appears fully priced.
•    Well-informed investors may park moderate fund for the medium term rewards.

PREFACE:
The RHP is dated March 14, 2024, for this FPO, but till Sunday noon, this was not available on NSE SME website. The company came with its maiden IPO in Sept./Oct. 2017 at a price of Rs. 23 per share to mobilize Rs. 4.17 cr. (1812000 shares).  For IPO the mandate was with Sarthi Capital Advisors Pvt. Ltd. For FPO, the mandate is given to Gretex Corporate Services Ltd. For IPO, it gave mandate to Choice Equity Broking Pvt. Ltd. and now for this FPO, Gretex group's Gretex Share Broking Ltd. is the market maker. The FPO is of 3600000 shares of Rs. 10 each with a price band of Rs. 71 - Rs. 75 per share to mobilize Rs. 27.00 cr. at the upper cap. The last traded price of the scrip is Rs. 82.00 per share on NSE SME as of March 15, 2024. Its higher lot of 2400 shares against normal 1600 shares is perhaps due to its current trading market lot on NSE.

ABOUT COMPANY:
Omfurn India Ltd. (OIL) is manufacturer and supplier of Pre-Finished Wooden Doors and Modular Furniture in India. It has been in business since November 13, 1997.  Since then, the company has been reaching remarkable milestones in creation and innovation. It creates a wide range of wooden doors and furniture for Modular Kitchens, Wardrobes, Vanities and Modern Office furniture through customized, system-based, or turnkey projects PAN India, got listed in NSE the year 2017.

Its team consists of professionals specialized in their respective fields. A team of technical administrative, project personnel and engineers work in conjunction with architects, interior designers, management staff, etc., to offer the best accomplished furnished products. OIL is deeply committed to its duty to nature and planet Earth. 

Its manufacturing factory in Umbergaon has a total area of 1,61,460 sq. ft. to increase manufacturing capacity and began manufacturing of furniture for premium hotels. The factory is equipped with the latest CNC woodworking machine from Germany and Italy. It also has an in-house design facility that provides complete furniture solutions, keeping in mind constant evolutions in international designs. As of November 30, 2023, it had 221 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its Follow-on Public Offer (FPO) of 3600000 equity shares of Rs. 10 each to mobilize Rs. 27.00 cr. at the upper cap. It has announced a price band of Rs. 71 - Rs. 75 per share. The issue opens for subscription on March 20, 2024, and will close on March 22, 2024. The minim um application to be made is for 2400 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 30.57% of the post-FPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 11.75 cr. for capex on plant and machinery and related infra expenses, Rs. 1.25 cr. for repayment of certain borrowings, and Rs. 7.50 cr. cr. for working capital and the rest for general corporate purposes.

The issue is solely lead managed by Gretex Corporate Services Ltd., and Bigshare Services Pvt. Ltd. is the registrar of the issue. Gretex Group's Gretex Share Broking Ltd. is the market maker for the company. 

The company has issued initial equity capital at par, and has issued further equity share via IPO at a price of Rs. 23 per share in October 2017. It has also issued bonus shares in the ratio of 9 for 1 in March 2007, 9 for 1 in February 2017, and 1 for 5 in October 2023.The average cost of acquisition of shares by the promoters is Rs. NIL per share. However, the IPO was made at NIL cost as per the offer document (Refer page no. 60)

Post-FPO, company's current paid-up equity capital of Rs. 8.17 cr. will stand enhanced to Rs. 11.77 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 88.31 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit/ -(loss) of Rs. 21.85 cr. / Rs. - (0.99) cr. (FY21), Rs. 32.30 cr. / Rs. 0.60 cr. (FY22), and Rs. 71.08 cr. / Rs. 4.15 cr. (FY23). For H1 of FY24 ended on September 30, 2023, it earned a net profit of Rs. 2.89 cr. on a total income of Rs. 44.75 cr. Thus last 18 months' sudden boost in its top and bottom line raise eyebrows and concern over its sustainability going forward. 

For the last three fiscals, it has reported an average EPS of Rs. 2.58, and an average RONW of 8.19%. The issue is priced at a P/BV of 2.14 based on its NAV of Rs. 35.02 as of September 30, 2023, and at a P/BV of 1.59 based on its post-IPO NAV of Rs. 47.25 per share (at the upper cap).

If we attribute annualized FY24 earnings to its post-FPO fully diluted paid-p capital, then the asking price is at a P/E of 15.27. Based on FY23 earnings, the P/E stands at 21.31. Thus the FPO appears fully priced. 

For the reported periods, the company has posted PAT margins of - (0.05) % (FY21), 0.02% (FY22), 0.06% (FY23), 0.07% (H1-FY24), and RoCE margins of 1.79%, 5.39%, 19.36%, 10.28% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
This is the 23rd mandate from Gretex Corporate in the last three fiscals, out of the last 10 listings, 2 opened at discount, and the rest with premiums ranging from 27.00% to 187.36% on the day of listing.

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