Omnipotent Ind BSE SME IPO review (Avoid)

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Review By Dilip Davda on November 11, 2021

•    OIL is engaged in bitumen and other bituminous products supply businesses.
•    Its own plant is being managed by a third party on a contract basis. 
•    Super profits reported for the last 16 months (Pre-IPO) raise eyebrows.
•    Sustainability of super earnings raises concern amidst the plant relocation process.
•    Lead Manager has a poor track record. 

ABOUT COMPANY:
Omnipotent Industries Ltd. (OIL) is engaged in the business of supplying bulk and packed bitumen as well as other bituminous products. It sources products either through direct imports or buys from third-party importers and sell them to various distributors as well as corporates. The company imports bulk as well as drum bitumen. OIL is ISO 9001:2015 and ISO 14001:2015 certified for import, trading and processing of petroleum & petrochemical products.

Its products include bitumen 60/70 & 80/100, bitumen VG10, VG30, VG 40; bitumen emulsion, blown bitumen, micro surfacing bitumen and modified bitumen CRMB, PMB, NRMB. Bitumen is most commonly used in the construction of roads and highways. Bitumen has excellent water-proofing properties and is widely used for making roofing products along with a range of other household and industrial applications, from emulsion paints to sound-proofing. Bitumen is also extensively used for the surfacing of roads and pavements and is also used as an adhesive substance in the production of binders. The entire marketing of its products is managed, through a team of sales and marketing personnel.

The company is also engaged in the consultancy of setting up of plants for Bitumen & Bituminous products. Its consultancy includes an end to end solutions from identification of land, plant & machinery to imparting training & making policy with staff on marketing & quality testing. It has also set up a bitumen decanter plant for melting of bitumen purchased in drums. Road contractors prefer the melted bitumen. It also solves availability and logistics issues with bitumen. 

It is relocating its plant from Panvel in Maharashtra to Gandhidham - Kutch in Gujarat. Though the company has its own plant, it is managed by a third party on a contractual basis. This remains the major concern for a while. From July 2021, it has also started trading in plastic polymers. As of September 30, 2021, the company has 19 employees on its payroll (including management personnel). 

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans for repayment of loans (Rs. 8 cr.), additional working capital (Rs. 6.67 cr.) and general corporate purpose (Rs. 3.48 cr.), OIL is coming out with a maiden IPO of 3000000 equity shares of Rs. 10 each at a fixed price of Rs. 63 per share to mobilize Rs. 18.90 cr. The issue opens for subscription on November 16, 2021, and will close on November November 22, 2021. Minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 49.59% of the post issue paid-up capital of the company. OIL will spend approx. Rs. 0.75 cr. for this IPO process. 

The issue is solely lead managed by Inventure Merchant Banker Services Pvt. Ltd., Bigshare Services Pvt. Ltd. is the registrar to the issue and Sernet Financial Services Pvt. Ltd. is the market maker for this issue. 

The company has issued entire equity at par so far and has also issued bonus shares in the ratio of 34 for 1 in September 2021. The average cost of acquisition of shares by the promoters is Rs. 0.29 per share. 

Post issue, OIL's current paid-up equity capital of Rs. 3.05 cr. will stand enhanced to Rs. 6.05 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 38.12 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, OIL has posted turnover/net profits of Rs. 30.98 cr. / Rs. 0.01 cr. (FY19), Rs. 50.18cr. / Rs. 0.38 cr. (FY20) and Rs. 100.85 cr.  / Rs. 1.40 cr. (FY21). For the four months of FY22 ended on July 31, 2021, it has earned a net profit of Rs. 1.03 cr. on a turnover of Rs. 65.83 cr. 

For the last three fiscals, the company has posted an average EPS of Rs. 4.69 and an average RoNW of 67.36%. The issue is priced at a P/BV of 6.05 based on its NAV of Rs. 10.41 as of March 31, 2021, and at a P/BV of 1.61 based on its post-issue NAV of Rs. 39.21. Surprisingly the company has not expressed its NAV as of July 31, 2021. 

If we annualize FY22 earnings and attribute it to fully diluted post issue equity capital, then the asking price is at a P/E of 12.33 (due to super earnings reported for the last 16 months). The sustainability of such super profits going forward raises concern. Prima facie issue appears reasonably priced, but financial data raises doubt for some window dressings.

COMPARISON WITH LISTED PEERS:
As per offer documents, OIL has shown Agarwal Industrial Corp. and GBL Ind. as its listed peers. They are currently trading at a P/E of 19.11 and 38.25 (As of November 11, 2021). However, they are not truly comparable on an apple to apple basis. 

DIVIDEND POLICY:
The company has not declared any dividend since its inception. It will adopt a prudent dividend policy post listing based on its financial performance and future prospects. 

MERCHANT BANKER'S PERFORMANCE: 
This is the 5th mandate from Inventure Merchant Banker in the last four fiscals (including the ongoing one). Out of the last 4 listings, 2 opened at discount and the remaining at a premium ranging from 1.89% to 2.70% on the day of listing. Thus it has a poor track record. 

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