Shine Fashions BSE SME IPO review (Avoid)

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Review By Dilip Davda on October 20, 2020

• SFIL is engaged in trading of textile materials with third party operations.
• It has shown just nine months of performance post-incorporation.
• First, two months of FY21 shows negative earnings.
• The issue is priced exorbitantly.
• Tiny equity indicates a longer gestation period for migration to mainboard.
  
  ABOUT COMPANY:
  Shine Fashions India Ltd. (SFIL) is primarily engaged in importing, supplying and trading of non -woven interlining fabrics, woven fusible interlinings and microdot fusible interlinings. The company sources its products from reliable manufacturers of the market. The interlinings produced are in different sizes, to cater to diverse customers' specifications. It is offering high-grade quality and fine finish products to customers. SFIL provides the bulk of products to customers in the stipulated time frame and as per their choice.
  
  Company's proficiency lies in understanding the specific requirement of customers and based on which it places the order of products to the manufacturer having requisite manufacturing facilities. The company supervises the entire manufacturing process including selection of interlinings produced till dispatch of the goods to customers place, to assure product quality and customer satisfaction. Thus it is doing third party business which is considered a very risky model of business.
  
  ISSUE DETAILS/CAPITAL HISTORY:
  To part finance its working capital (Rs. 1.00 cr.) and general corpus fund (Rs. 0.20 cr.) needs, SFIL is coming out with a maiden IPO of 399000 equity share of Rs. 10 each at a fixed price of Rs. 40 per share to mobilize Rs. 1.60 cr. The issue opens for subscription on October 22, 2020, and will close on October 26, 2020. Minimum application is to be done for 4000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 28.52% of the post issue paid-up equity capital.
  
  SFIL is spending Rs. 0.40 cr. (25% of the total issue fund) for this IPO process indicating the fully structured format of this issue.
  
  The issue is solely lead managed by Shreni Shares Pvt. Ltd. and Cameo Corporate Services Ltd. is the registrar to the issue. Shreni Shares Pvt. Ltd. is also acting as a Market Maker for this IPO.
  
  Having issued initial equity at par, it raised further equity at a price of Rs. 2971 per share in December 2019 and also issued bonus shares in the ratio of 49 for 1 in the same month.  The average cost of acquisition of shares by the promoters is Rs. 0.000025 and Rs. 99.47 per share.
  
  SFIL's current paid-up equity capital of Rs. 1.00 cr. will stand enhanced to Rs. 1.40 cr. post this issue.
  
  FINANCIAL PERFORMANCE:
  The company was incorporated on September 11, 2019, Therefore the information presented relating to the Company is based on the restated financial statements of the Company for the period ended March 31, 2020, and May 31, 2020, prepared in accordance with Indian GAAP.
  
  For the period ended March 31, 2020, the company has posted a net profit of Rs. 0.34 cr. on a turnover of Rs. 7.96 cr. For two months period ended on May 31, 2020, of the current fiscal, it has reported a loss of Rs. 0.03 cr. on a turnover of Rs. 0.02 cr.).
  
  According to the offer documents, the company has posted non-annualized EPS of Rs. 3.45 and Rs. - (0.26) for the periods ended on March 31, 2020, and May, 31, 2020 respectively. For the said periods, it has reported RoNW of 10.37% and - (0.82) respectively. The issue is priced at a P/BV of 1.25 based on its NAV of Rs. 31.93 as on May 31, 2020, and at a P/BV of 1.19 based on post issue NAV of Rs. 34.23.
  
  As per the latest financial data, since the company has posted negative earnings, it is priced exorbitantly with minuscule performance. Even the post issue paid-up equity capital indicates long gestation for migration to mainboard.
  
  COMPARISION WITH LISTED PEERS:
  As per the offer documents, SFIL has shown Trident Texo as its listed peers that is currently trading at a P/E of around 111.73 (as on October 20, 2020). However, it is not strictly comparable on an apple to apple basis.
  
  MARCHANT BANKER'S TRACK RECORDS:
  On merchant banker's front, this is the 4th mandate from its stable in the last two fiscals. Out of the last 2 listings, 1 listed at par, and 1 at a premium of 1.95% on the day of listing. Bodhi Tree - the third mandate is yet to be listed. Thus this merchant banker has non-impressive track record.

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