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Rex Sealing BSE SME IPO review (May apply)

Review By Dilip Davda on Dec 27, 2022

•    The company is engaged in a highly competitive and fragmented segment of sealing packaging and insulation products. 
•    It has posted inconsistency in its financial performance of the reported periods. 
•    Based on super profits of annualize FY23, the issue is fully priced. 
•    Small equity base post listing indicates longer gestation for migration to the main board.
•    Well-informed, cash surplus/risk seekers may consider parking funds. 
 
ABOUT COMPANY:
Rex Sealing and Packing Industries Ltd. (RSPIL) is a manufacturer and exporter of Sealing packing and Insulation products including Jointing Sheets, Fabric Expansion Joints, Gland packing & Ropes, High-Temperature resistant textiles, Ceramic Fiber Products, etc. This segment is highly competitive and fragmented. 

The products category of RSPIL includes Compressed Fibre Jointing Sheets / Gaskets, Gland Packing & Ropes, Fabric Expansion Joints, Technical and Heat Resistance Textiles, and Ceramic Fiber Products.

The company is in the process of setting up an additional manufacturing facility at Anand Nagar, MIDC Ambernath, for the expansion of business and manufacture of all types of "Asbestos Free" Gasket sheets for Automotive, Steel, and other process units. At present, it caters to domestic markets as well as international markets, limited to Gulf and Middle East countries. As of July 31, 2022, it has 29 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 599000 equity shares of Rs. 10 each at a fixed price of Rs. 135 per share to mobilize Rs. 8.09 cr. The issue consists of a fresh equity share issue of 300000 shares (worth Rs. 4.05 cr.), and an Offer for Sale (OFS) of 299000 equity shares (worth Rs. 8.04 cr.). The issue opens for subscription on December 30, 2022, and will close on January 04, 2023. The minimum number of shares to be applied is 1000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.98% of the post-issue paid-up capital of the company. RSPIL is spending Rs. 0.39 cr. for the fresh equity issue of Rs. 4.05 cr. From the residual proceeds, it will use Rs. 2.79 cr. for working capital and Rs. 0.87 cr. for general corporate purposes. For the entire issue proceeds, the company is spending Rs. 0.69 cr., indicating the fully structured nature of the IPO. 

The issue is solely Lead Managed by Aryaman Financial Services Ltd. and Bigshare Services Pvt. Ltd. is the registrar of the issue. Aryaman Capital Markets Ltd. is the Market Maker for the company. 

The company has issued entire equity shares at par so far and has also issued bonus shares in the ratio of 5 for 1 in March 2022. The average cost of acquisition of shares by the promoters is Rs. 1.67 per share.  

Post-IPO, the company's current paid-up equity capital of Rs. 1.92 cr. will stand enhanced to Rs. 2.22 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 29.97 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, RSPIL has posted a turnover/net profit of Rs. 20.18 cr. / Rs. 1.13 cr. (FY20), Rs. 17.26 cr. / Rs. 0.37 cr. (FY21), and Rs. 21.16 cr. / Rs. 0.55 cr. (FY22). For the Q1 of FY23 ended on June 30, 2022, it earned a net profit of Rs. 0.38 cr. on a turnover of Rs. 5.72 cr. The sudden boost in net profits of Q1FY23 raises eyebrows.

For the last three fiscals, the company has reported an average EPS of Rs. 3.05 and an average RoNW of 7.49%. The issue is priced at a P/BV of xx based on its NAV of Rs. 44.89 as of June 30, 2022, and at a P/BV of xx based on its post-IPO NAV of Rs. 57.07 per share. Thus it posted inconsistency in its top and bottom lines. 

If we annualize FY23 super earnings and attribute them to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 19.62. Based on FY22 earnings, the issue is at a P/E of 54.43. Thus the issue is aggressively priced on the basis of FY22 earnings and fully priced on the basis of super earnings for Q1FY23. 

DIVIDEND POLICY:
The company has not declared any dividends since incorporation. 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 16th mandate from Aryaman Financial in the last three fiscals (including the ongoing one). Out of the last 10 listings, 2 opened at par and the rest with premiums ranging from 0.02% to 27.18% on the day of listing.


Conclusion / Investment Strategy

RSPIL is in a highly competitive and fragmented segment. It has posted inconsistency in its financial performance. On the basis of its super earnings for Q1 of FY23, the issue appears fully priced. Small paid-up equity capital post listing indicates longer gestation for migration to the main board. Well-informed, cash surplus/risk seekers may consider parking funds.

Review By Dilip Davda on Dec 27, 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

Rex Sealing and Packing Industries IPO FAQs

  1. 1. Why Rex Sealing and Packing Industries IPO?

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

  2. 2. How is Rex Sealing and Packing Industries IPO?

    Read the Rex Sealing and Packing Industries IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. Rex Sealing and Packing Industries IPO what should investors do?

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

  4. 4. Is Rex Sealing and Packing Industries IPO good?

    Our recommendation for Rex Sealing and Packing Industries IPO is to subscribe for long term.

  5. 5. Is Rex Sealing and Packing Industries IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to subscribe for long term to the Rex Sealing and Packing Industries IPO.

  6. 6. When will Rex Sealing and Packing Industries IPO allotment status?

    The Rex Sealing and Packing Industries IPO allotment status will be available on or around Jan 9, 2023. The allotted shares will be credited in demat account by Jan 11, 2023. Visit Rex Sealing and Packing Industries IPO allotment status to check.

  7. 7. When will Rex Sealing and Packing Industries IPO list?

    The Rex Sealing and Packing Industries IPO will list on Thursday, January 12, 2023, at BSE SME.

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