Silkflex Poly NSE SME IPO review (May apply)

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Review By Dilip Davda on May 4, 2024

•    The company is engaged in trading of Malaysian textile printing inks and water based wood coating polymer products in India
•    The company fared with average earnings till FY23, but posted bumper profits for 9M-FY24.
•    The margins posted for period ended on December 31, 2023 raise eyebrows and concern over its sustainability. 
•    Based on FY24 annualized super earnings, the issue appears fully priced. 
•    Well-inform/cash surplus investors may park moderate funds for medium to long term rewards.

ABOUT COMPANY:
Silkflex Polymers (India) Ltd. (SPIL) is engaged in the trading of the textile printing inks and water-based wood coating polymers products of a Malaysian based brand- "Silkflex" produced by Silkflex Polymers SDN BHD ("Silkflex Malaysia"). Silkflex Malaysia, are one of the garment printing ink manufacturers of Malaysia. Silkflex Malaysia manufactures its products through its manufacturing unit located in Malaysia and the same products are then supplied around the globe through its authorized agents. The list of countries where Silkflex Malaysia supplies the products includes India, Thailand, Turkey, Russia, SriLanka, Bangladesh and Indonesia. 

As on this date of Prospectus, the Company has the right to sell the products of Silkflex and the rights to use the brand name of Silkflex in India. It offers a wide variety of products which consists of 108 textile printing ink products and 51 wood coating polymers products. SPIL has entered into an agreement with Silkflex Malaysia on October 01, 2016, for distribution and selling, the water-based textile printing inks products of Silkflex. It also entered into agreement with Silkflex Malaysia on October 01, 2019 for distribution and selling, the wood coating polymers products of Silkflex Malaysia.  As of December 31, 2023, it had 28 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 3482000 equity shares of Rs. 10 each at a fixed price of Rs. 52 per share to mobilize Rs. 18.11 cr. The issue opens for subscription on May 07, 2024, and will close on May 10, 2024. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 30.00% of the post-IPO paid-up capital of the company. The company is spending Rs. 1.71 cr. for this IPO process and from the net proceeds, it will utilize Rs. 5.54 cr. for acquisition of land, Rs. 2.08 cr. for capex on plant and machinery, Rs. 4.68 cr. for working capital, and Rs. 4.10 cr. for general corporate purposes.

The issue is solely lead managed by Shreni Shares Ltd., and Bigshare Services Pvt. Ltd. is the registrar of the issue. Shreni Shares Ltd. is also the market maker for the company. 

The company issued initial equity shares at par value, and issued further equity shares in the price range of Rs. 16 - Rs. 35 per share between November 2019 and May 2021. It has also issued bonus shares in the ratio of 9 for 4 in October 2023. The average cost of acquisition of shares by the promoters is Rs. 3.08, Rs.6.18, Rs. 6.81, and Rs. 10.77 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 8.13 cr. will stand enhanced to Rs. 11.61 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 60.36 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 20.96 cr. / Rs. 0.45 cr. (FY21), Rs. 28.05 cr. / Rs. 0.69 cr. (FY22), and Rs.34.42 cr. / Rs. 0.79 cr. (FY23). For 9M of FY24 ended on December 31, 2023, it earned a net profit of Rs. 2.57 cr. on a total income of Rs. 33.82 cr. The sudden boost in bottom line for 9M-FY24 raise eyebrows and concern over its sustainability. 

For the last three fiscals, it has reported an average EPS of Rs. 0.88, and an average RoNW of 9.38%. The issue is priced at a P/BV of 3.94 based on its NAV of Rs. 13.21 as of December 31, 2023, and at a P/BV of 2.22 based on its post-IPO NAV of Rs. 23.38 per share.

If we attribute annualized FY24 super earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 17.63. Based on FY23 earnings, the P/E stands at 76.47. Thus the issue appears fully priced.

For the reported periods, the company has posted PAT margins of 2.19% (FY21), 2.47% (FY22), 2.30% (FY23), 7.67% (9M-FY24), and RoE margins of 11.52%, 10.96%, 10.11%, 23.91% respectively for the referred periods. 

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 shown BASF India, Heubach Colorants, and Berger Paints as their listed peers. They are trading at a P/E of 37.2, 20.8 and 53.9 (as of May 03, 2024). However, they are not comparable on an apple-to-apple basis. This comparison appears to be an eyewash. 

MERCHANT BANKER'S TRACK RECORD:
This is the 26th mandate from Shreni Shares in the last three fiscals (including the ongoing one), out of the last 10 listings, all listed with premiums ranging from 7.5% to 143.24% on the date of listing.

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