Sorich Foils NE SME IPO review (Avoid)

Sorich Foils Ltd. (SFL) is engaged in manufacturing and supplying a varied range of Aluminium Foils for Blister, Strip Foils, Cold Forming Foil, Coated Glassine Paper for Blister, Laminated Glassine Paper for Strip Pack, Child Resistant (CR) Foils, Aluminium Lid Foils, Triple Laminates, Flexible Packaging for Pharma & Food Industries, also FMCG packaging materials. This range is designed & developed utilizing advanced machinery and latest technology in complete adherence with the industry laid norms and standards. The offered range is appreciated among the clients for its features such as Water Vapor Resistance, Moisture & chemical barrier properties. These products are widely applicable in different industries such as Pharmaceutical Industries, FMCG packaging, Food and dairy industries, Confectionery / Chocolate industries & Personal Care Packaging.

To part finance its repayment/pre-payment of unsecured debts and general corpus fund needs, SFL is coming out with a maiden IPO of 2500000 equity shares of Rs. 10 ech at a fixed price of Rs. 16 per share to mobilize Rs. 4.00 crore. Issue opens for subscription on 24.05.18 and will close on 28.05.18. Minimum application is to be made for 8000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. Issue is solely lead managed by Saffron Capital Advisors Pvt. Ltd. and Link Intime India Pvt. Ltd. is the registrar to the issue. Issue constitutes 30% of the post issue paid up capital of the company. Having issued initial equity at par, it raised further equity in the price range of Rs. 10 to Rs. 40 per share and has issued bonus shares in the ratio of 1 to 1 in January 2018. Average cost of acquisition of shares by the promoters is Rs. 12.75 per share. Post issue, Its paid up equity of Rs. 1 crore as on 31.03.17 got enhanced to Rs. 5.83 crore as on 31.01.18 and that will further stand enhanced to Rs. 8.33 cr. post issue.

On performance front, for last four fiscals SFL has (on a consolidated basis) posted turnover/net profits of Rs. 22.86 cr. / Rs. 0.20 cr. (FY14), Rs. 25.07 cr. / Rs. 0.22 cr. (FY15), Rs. 26.90 cr. / Rs. 0.19 cr. (FY16) and Rs. 26.59 cr. / Rs. 0.33 cr. (FY17). For first 10 months ended on 31.01.18 of FY18 it has earned net profit of Rs. 0.57 cr. on a turnover of Rs. 23.13 cr. Last two fiscals top line is almost static and bottom line has seen setback for FY16. For last three fiscals it has posted an average EPS of Rs. 4.17 and an average RoNW of 10.83%. Issue is priced at a P/BV of less than 1 on the basis of post issue NAV of Rs. 16.36. If we annualize latest earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 19 plus against industry average of 7. As per offer documents it has considered Sysco Ind and PG Foils as its listed peers that are trading at a P/Es of around 2 and 7 respectively ( as on 21.05.18). Thus issue is priced very aggressively.

On merchant banker's front, this is the 2nd mandate from its stable in last two fiscals. The only listing so far opened at a premium of 20% on the day of listing.