Siddhika Coatings NSE SME Emerge IPO review (Subscribe for Long Term)

Review By Dilip Davda on Mar 20, 2021

•    SCL is a strategic channel partner in India for SKK group - Singapore.
•    Though inconsistency, it posted good financials and has strong NAV.
•    Based on FY20 earnings, the issue is priced at a P/E of around 6.
•    It suffered a severe setback in the pandemic year and may take some more time to be back on track.
•    Cash surplus investors may consider long term investment.

ABOUT COMPANY:
Siddhika Coatings Ltd. (SCL) is a strategic channel partner in India for SK Kaken Ltd. ('SKK') and an authorized importer of its products through SKK Singapore Pte. Ltd. SKK is a renowned coatings and pigments manufacturer based in Japan. Having been associated with SKK for over 15 years, it has gained the reputation of being one of the well-known suppliers of their products in India.

SCL provides application services which include preparing and coating interior as well as exterior surfaces of civil structures using organic and inorganic architectural textured pigments and technical-grade functional coatings. In addition, to apply and supply to the majority of its clients, the company also provides technical support service along with the supply of products wherein its experienced team provides technical know-how, guidance and equipment for paint/coatings application. Currently, SCL is placed as one of the older marketers for SKK products and its specialist paint and application service providers in India.

The company follows the "team-based" model of its business and annually manages approx. 250000 sq. mtrs. Of application contracts. It focuses on providing bespoke services for both, existing clients with repeat contracts as well as new clients to suit their requirements.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 3.31 cr.), general corpus funds (Rs. 0.99 cr.), the company is coming out with a maiden IPO of 824000 equity shares of Rs. 10 each with a price band of Rs. 57 per share to mobilize Rs. 4.70 cr. The issue opens for subscription on March 24, 2021, and will close on March 26, 2021. Minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on the NSE SME Emerge platform.

 It constitutes 26.67% of the post issue paid-up equity capital of the company.  

The issue is solely lead managed by Unistone Capital Pvt. Ltd., and Skyline Financial Services Pvt. Ltd. Is the registrar to the issue. Rikhav Securities Ltd. is the market maker for this issue. SCL will be spending Rs. 0.40 cr., for this IPO process.

Having issued initial equity at par, the company has raised further equity in the price range of Rs. 30 to Rs. 209 between February 2011 and March 2016. It also bought back few shares at Rs. 144 per share in March 2015. The company has also issued bonus shares in the ratio of 9 for 1 in October 2019. The average cost of acquisition of shares by the promoters is Rs. 1.00 per share.

Post the issue, SCL's current paid-up equity capital of Rs. 2.27 cr., will stand enhanced to Rs. 3.09 cr. At the upper price band of the issue, the company is looking for a market cap of Rs. 17.61 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, SCL has (on a consolidated basis) posted turnover/net profit of Rs. 22.15 cr. / Rs. 2.56 cr. (FY18), Rs. 32.24 cr./ Rs. 3.51 cr. (FY19) and Rs. 30.42 cr. / Rs. 2.96 cr. (FY20). For the first half of the current FY21 ended on September 30, 2020, it has earned a net profit of  Rs. 0.20 cr., on a turnover of Rs. 6.15 cr. Having shown inconsistency for the previous three fiscals, it also posted a heavy setback for the first half of FY21 ended on September 30, 2020, due to a pandemic scare.

For the last three fiscals, SCL has posted an average EPS of Rs. 13.58 and an average RoNW of 20.47%. The issue is priced at a P/BV of 0.75 based on its NAV of Rs. 75.86 as of September 30, 2020, and at a P/BV of 0.82 based on its post-issue NAV of Rs. 69.53.

If we annualize the latest earnings (posting setback due to pandemic) and attribute it to a fully diluted equity post issue, then the asking price is at a P/E of around 44.19, but on the basis of FY20 earnings, the asking price is at around 5.95 P/E.

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

DIVIDEND POLICY:
For the last three fiscals, the company has paid a dividend of 125% (FY18), 150% (FY19) and 20% (FY20). It will continue to follow a prudent dividend policy based on its performance and future prospects going forward.

MERCHANT BANKER'S TRACK RECORDS:
This is the 4th mandate from its stable in the last three fiscals (including the ongoing one). Out of the last 3 listings, all opened with premiums ranging from 0.37% to 13.83% on the day of listings.


Conclusion / Investment Strategy

SCL has posted good earnings despite all odds for the last three fiscals. However, it suffered a severe setback due to pandemic for the first half of the current fiscal. Good back up in the form of free reserves and pricing of the IPO below 1 P/BV augurs well. Its prospects hinge on the restoration of normalcy which will bring back this company on track. The company has good fundamentals. Cash surplus investors may consider an investment with a long term perspective.

Reviewer recommends Subscribing to the issue for Long Term.

Review By Dilip Davda on Mar 20, 2021

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

Siddhika Coatings IPO FAQs

  1. 1. Why Siddhika Coatings IPO?

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

  2. 2. How is Siddhika Coatings IPO?

    Read the Siddhika Coatings IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. Siddhika Coatings IPO what should investors do?

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

  4. 4. Is Siddhika Coatings IPO good?

    Our recommendation for Siddhika Coatings IPO is to subscribe for long term.

  5. 5. Is Siddhika Coatings IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to subscribe for long term to the Siddhika Coatings IPO.

  6. 6. When will Siddhika Coatings IPO allotment status?

    The Siddhika Coatings IPO allotment status will be available on or around [.]. The allotted shares will be credited in demat account by [.]. Visit Siddhika Coatings IPO allotment status to check.

  7. 7. When will Siddhika Coatings IPO list?

    The Siddhika Coatings IPO will list on Wednesday, April 7, 2021, at NSE SME.








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