Review By Dilip Davda on Dec 9, 2018
• SRDCL is engaged in trading of dyes and chemicals.
• Last 15 months working is spectacular, raises concern for its sustainability.
• Issue is priced attractively, but LM has poor track record.
• Risk savvy investors may consider investment at their own risk.
Shankar Lal Rampal Dye-Chem Ltd. (SRDCL) is in the business of trading in Dyes and Chemicals since year 2005. The company mainly specializes in Hydrogen Peroxide, Sodium Bi Carbonate 99.5%, Sodium Meta Bi Sulphite 97%, Soda Ash Light, Linear Alkyl Benzene Sulphonic Acid 90% and many others chemicals. It trades in all types of Sulphur Dyes. The Dyes and Chemicals are mainly caters to Textiles &Garments manufacturing Industry, Food and Beverages Industries, Laboratory, Leather, Candel making industries, Plastic Industries, Agriculture, Water Treatment, Personal Care & Cosmetics Industries, Plywood Industry etc. The Company also trades in speciality performance chemicals used in Textile Dyeing and Printing Industry.
ISSUE DETAILS/CAPITAL HISTORY:
To part finance its working capital and general corpus fund needs, SRDCL is coming out with a maiden IPO of 1620000 equity shares of Rs. 10 each at a fixed price of Rs. 45 per share. Through this issue the company mulls mobilizing Rs.7.29 cr. Issue opens for subscription on 12.12.18 and will close on 14.12.18. Minimum application is to be made for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. Issue is solely lead managed by Finshore Management Services Ltd. while Cameo Corporate Services Ltd. is the registrar to the issue. Issue constitutes 27.01% of the post issue paid up capital of SRDCL. Having raised initial equity at par, it issued further equity in the price range of Rs. 25 to Rs. 50 between February 2006 and March 2018. Average cost of acquisition of shares by the promoters is Rs. 26.09, Rs. 29.13, Rs. 32.40, Rs. 32.74 and Rs. 33.31 per share. Post issue, company's current paid up capital of Rs. 4.38 cr. will stand enhanced to Rs. 6.00 cr.
On financial performance aspect, for last four fiscals, SRDCL has reported turnover/net profits of Rs. 21.95 cr. / Rs. 0.06 cr. (FY15), Rs. 26.00 cr. / Rs. 0.10 cr. (FY16), Rs, 29.19 cr. / Rs. 0.11 cr. (FY17) and Rs. 75.17 cr. / Rs. 0.96 cr. (FY18). For Q1 of FY19 it has earned net profit of Rs. 1.52 cr. on a turnover of Rs. 40.85 cr. Thus quantum jump in top and bottom lines for FY18 and Q1 of FY19 is really surprising.
As per offer document, for last five fiscals, it has posted an average EPS of Rs. 2.05 and an average RoNW of 2.36%. Issue is priced at a P/BV of 0.88 on the basis of its NAV of Rs. 51.38 as on 30.06.18 and at a P/BV of 0.89 on the basis of post issue NAV of Rs. 50.71.
If we annualize latest earnings and attribute it to fully diluted equity post issue, then asking price is at a P/E of around 4.44 and thus priced very attractively. The only concern is the sudden jump in top and bottom lines for last 15 months working and its sustainability.
COMPARE WITH LISTED PEERS:
As per offer document, it has shown Jaysynth Dyestuff, Camex and Bhageria Ind as its listed peers that are trading at a P/E of around 18.5, 10.3 and 8.5 (as on 07.12..18). However, they are not strictly comparable on the basis of business models.
LEAD MANAGER'S TRACK RECORDS:
This is the 7th mandate from its stable. Out of last six mandates 1 (Diksha Greens) has yet to be listed. Out of last 5 listings, 3 opened at discount and the 2 with premiums of around 0.02% to 5% on the day of listing. Thus it has poor track record.
Promoters have brought in money at a premium and have not yet used reserves for free scrip. Last 15 months working has shown spectacular performance, but its sustainability is a major concern. Although issue is priced attractively, risk savvy cash surplus investors may consider investment at their own risk.
Review By Dilip Davda on Dec 9, 2018
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 prior to making any actual investment decisions, based on information published here. With entry barriers, SEBI wants only well informed investors to participate is such offers. With crazy recent listings, SME IPOs have started drawing attention of investors across the board. However, as SME issues have entry barriers and continued low preference from broking community, any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on information available as on date coupled with market perceptions. Author has no plans to invest in this offer.
(SEBI registered Research Analyst-Mumbai).
About 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.
The SR Dye-Chem IPO Analysis helps you to understand about the company, offer detail, valuation, capital structure and financial performance. Our SEBI registered IPO Analysts tells you if SR Dye-Chem IPO worth investing. The SR Dye-Chem IPO Note sets the IPO expectations in systematic way which tells you if SR Dye-Chem IPO good to buy (good or bad / yes or no). The IPO Forecast tells you weather to invest in SR Dye-Chem IPO by providing IPO recommendations i.e. subscribe, avoid and neutral.
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