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Quality RO BSE SME IPO review (Avoid)

Review By Dilip Davda on Jan 23, 2022

•    This IPO comes with just 62 days' working details post-incorporation.
•    QRIL's financial data has no match for the asking price.
•    The issue is exorbitantly priced at a P/E above 113.
•    Low paid-up equity post IPO indicates a longer gestation period for mainboard migration.
•    Simply stay away from this greedily priced offer. 

ABOUT COMPANY:
Quality RO Industries Ltd. (QRIL) is engaged in the business of manufacturing, marketing and supplying components for water purifiers and softener equipment. These water purifier parts have been designed to make a proper fitting for RO Plants and Systems of different varieties, as the company produces strictly according to industry standards.

As of November 30, 2021, QRIL has just 7 employees at the Registered Office including directors.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans for capital expenses (Rs. 1.40 cr.), working capital needs (Rs. 0.50 cr.) and general corporate purpose (Rs. 0.24 cr.), QRIL is coming out with a maiden IPO of 530000 equity shares of Rs. 10 each at a fixed price of Rs. 51 per share to mobilize Rs. 2.70 cr. The issue opens for subscription on January 27, 2022, and will close on February 01, 2022. 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 27.46% of the post issue paid-up capital of the company. QRIL is spending Rs. 0.56 cr. for this IPO process. This expense indicates funding arrangements by the merchant bankers for at least a one-time full subscription. 

The issue is solely lead managed by Shreni Shares Pvt. Ltd. and Skyline Financial Services Pvt. Ltd. is the registrar to the issue. Shreni Shares Pvt. Ltd. is also acting as a market maker for this company. 

Having issued initial equity at par, the company issued further equity at a price of Rs. 82 per share in November 2021. It has also issued bonus shares in the ratio of 6 for 1 in the said month. The average cost of acquisition of shares by the promoters is Rs. 11.13 per share. 

Post-IPO, QRIL's current paid-up equity capital of Rs. 1.40 cr. will stand enhanced to Rs. 1.93 cr. Based on the IPO price, the company is looking for a market cap of Rs. 9.84 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, for the FY22, QRIL has reported only 62 days working post its incorporation. For the period from September 30, 2021, to November 30, 2021, it has earned a net profit of Rs. 0.02 cr. on a turnover of Rs. 0.17 cr. 

As proprietorship entity, for the last three fiscals, it has posted turnover/net profits of Rs. 1.24 cr. / Rs. - (0.06) cr. (FY19), Rs. 1.90 cr. / Rs. 0.01 cr. (FY20), Rs. 1.85 cr.  / Rs. 0.04 cr. (FY21).  

The issue is priced at a P/BV of 4.51 based on its NAV of Rs. 11.31 as of November 30, 2021, and at a P/BV of 2.64 based on its post-IPO NAV of Rs. 19.29. 

If we annualize FY22 earnings and attribute it to fully diluted post-IPO paid-up equity capital, then the asking price is at a P/E of 113 making it an exorbitantly priced offer. 

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

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

MERCHANT BANKER'S TRACK RECORDS:
This is the 9th mandate from Shreni shares in the last three fiscals (including the ongoing one). Out of the last seven listings (Alkosign yet to be listed), 2 opened at par and the rest with premiums ranging from 0.68% to 19.05% on the day of listing. Thus the merchant banker has an average track record. 


Conclusion / Investment Strategy

QRIL’s financial performance is not that impressive for the asking price and that too appears exorbitant at 113 P/E. Its post IPO equity capital will be just below Rs. 2 cr. and thus will have longer gestation for migration to the main board. Simply stay away from this greedily priced offer.

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on Jan 23, 2022

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

Quality RO IPO FAQs

  1. 1. Why Quality RO IPO?

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

  2. 2. How is Quality RO IPO?

    Read the Quality RO IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. Quality RO IPO what should investors do?

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

  4. 4. Is Quality RO IPO good?

    Our recommendation for Quality RO IPO is to avoid.

  5. 5. Is Quality RO IPO worth Investing?

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

  6. 6. When will Quality RO IPO allotment status?

    The Quality RO IPO allotment status will be available on or around Feb 4, 2022. The allotted shares will be credited in demat account by Feb 8, 2022. Visit Quality RO IPO allotment status to check.

  7. 7. When will Quality RO IPO list?

    The Quality RO IPO will list on Wednesday, February 9, 2022, at BSE SME.