Sabar Flex NSE SME IPO review (May apply)

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Review By Dilip Davda on September 5, 2022

•    SFIL is engaged in the business of plastic packaging products.
•    It has posted an almost static top line with some growth in net margins.
•    Based on its current earnings, the issue appears fully priced. 
•    Well-informed, cash surplus/risk seekers may consider an investment. 

ABOUT COMPANY:
Sabar Flex India Ltd. (SFIL) is in the business of packaging products made from plastics that cater to the packaging requirements of various industries. Most of the Company's existing products are industrial in nature. Overall, SFIL supplies total 3 different products, that is, Multilayer films, Printed laminates, and flexible packaging products (pouches and bags).

Printed laminates and flexible packaging products are part of Multilayer film only which are later on cut as per the requirement of the customer. Since flexible packaging material predominantly consists of plastic as a major raw material, the company aims to manufacture products sustainably by aiming towards "Reuse, Recycle and Upcycle". Its product portfolio largely consists of multi-colour pouches, stand-up pouches, zip-lock pouches, vacuum pouches, paper bags, e-commerce bags, etc. Over the years, it has offered cost-effective and customized flexible packaging solutions in accordance with the standardized sizes, and designs of the customer requirements, coherent with the latest technological advances within the industry. 

It manufactures packaging material suitable for packaging products manufactured in the food and beverage industry, e-commerce industry, pharmaceutical industry, hygiene, and personal care industry, household industry, and agricultural industry. SFIL's key customers are well-known brands in the food, beverage, and household industry for manufacturing inter alia dairy products; biscuits, cakes, and rusks; namkeens; frozen snacks, and essential products such as tea, spices, rice, etc.  Currently, the company has 92 employees on its payroll. It is operating in a highly competitive and fragmented segment. 

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its need for working capital (Rs. 3.10 cr.), general corporate purposes (Rs. 0.90 cr.), SFIL is coming out with a maiden IPO of 4070000 equity shares of Rs. 10 each at a fixed price of Rs. 11 per share to mobilize Rs. 4.48 cr. The issue opens for subscription on September 08, 2022, and will close on September 13, 2022. Minimum application is to be made for 10000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 27.01% of the post-issue paid-up capital of the company. SFIL is spending Rs. 0.48 cr. for this IPO process indicating the fully structured nature of the IPO.

The issue is solely lead managed by GYR Capital Advisors Pvt. Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Econo Broking Pvt. Ltd. is the market maker for this company. 

The company has issued its entire equity capital at par so far. The average cost of acquisition of shares by the promoters is Rs. 10 per share. 

Post-IPO, SFIL's current paid-up equity capital of Rs. 11.00 cr. will stand enhanced to Rs. 15.07 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 16.58 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, SFIL has posted turnover/net profits of Rs. 63.64 cr. / Rs. 0.90 cr. (FY20), Rs. 73.98 cr. / Rs. 1.40 cr. (FY21), Rs. 72.37 cr. / Rs. 1.74 cr. (FY22). 

For the last three fiscals, SFIL has reported an average EPS of Rs. 1.35 and an average RoNW of 11.91%. The issue is priced at a P/BV of 0.77 based on its NAV of Rs. 14.30 as of March 31, 2022, and at a P/BV of 0.82 based on a post-IPO NAV of Rs. 13.40 per share. 

If we attribute FY22 earnings on post IPO fully diluted equity, then the asking price is at a P/E of around 9.48. Thus the issue is fully priced based on its current financial data. The sustainability of its net margins is a major concern going forward.

COMPARISON WITH LISTED PEERS:
As per offer documents, SFIL has shown Rajshree Poly, TCPL Pack, and Polyplex Corp as its listed peers. They are currently trading at a P/E of 20.06, 19.76, and 11.52 (as of September 05, 2022). However, they are not truly comparable on an apple-to-apple basis. 

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

MERCHANT BANKER'S TRACK RECORD:
This is the 7th mandate from GYR Capital in the last two fiscals (including the ongoing one). Out of the last four listings, all were listed with a premium ranging from 2.45% to 6.15% on the day of listing. Thus it has an average track record.

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