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Sun Retail BSE SME IPO review (Avoid)

Review By Dilip Davda on Sep 25, 2018

•    SRL is in trading of edible oil segment.
•    Business is of high volume/low margin scenario.
•    Oil trading is highly competitive business.
•    Issue is priced exorbitantly.

ABOUT COMPANY:
Sun Retail Ltd. (SRL) is engaged in the business of trading into refined/filtered edible oils. Its major products include cottonseed oil, groundnut oil, sunflower oil. The company also performs activity of bulk trading of palmolein oil and soyabean oil. Products are sold under the brand name of "Dharti" and "Dharti SingTel". The brand is well known and accepted by the people of Gujarat. The company offers refined/filtered edible oil in different packing size ranging from 15kg tin containers, 15 Litre jars, 5 Litre jars, 2 Litre jars, 1 Litre bottle, 1 Litre pouch, 500 ml bottle and 500 ml pouch. SRL purchase refined/filtered oils from the local oil refineries as per needed specification and requirements and subsequently, it is sold to Kanel Industries Limited for re-filtration and thereafter the final product is packed into tin containers, jars, bottles or pouches of different sizes as per our requirements.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its working capital and general corpus fund needs, SRL is coming out with a maiden IPO of 4398000 equity shares of Rs. 10 each at a fixed price of Rs. 23 per share. The company mulls mobilizing Rs. 10.12 cr. from this float. Issue opens for subscription on 27.09.18 and will close on 03.10.18. Minimum application is to be made for 6000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. Issue constitutes 45.35% of the post issue paid up capital of the company. Issue is solely lead managed by Fedex Securities Ltd. while Bigshare Services Pvt. Ltd. is the registrar to the issue. It has issued/converted its equity at par since inception. It has collected Rs. 13 per share extra from one of the promoter in January 2018 for 1000000 shares which has been shown separately on page 39 to 41 of the offer document. Average cost of acquisition of shares by the promoters is Rs.12.45 per share. Post issue SRL’s current paid up capital of Rs. 5.30 cr. will stand enhanced to Rs. 9.70 cr.

FINANCIAL PERFORMANCE:
On performance front, for last four fiscals, SRL has posted turnover/net profits of Rs. 23.10 cr. / Rs. 0.01 cr. (FY15), Rs. 25.63 cr. / Rs. 0.04 cr. (FAY16), Rs. 68.06 cr. / Rs. 0.19 cr. (FY17) and 65.32 cr. / Rs. 0.23 cr. (FY18). Sudden jump in top line for FY17 and FY18 a bit surprising. Issue is priced at a P/BV of 1.77 based on its NAV of Rs. 12.97 as on 31.03.18 and at a P/BV of 1.31 based on post issue NAV of Rs. 17.52. For last three fiscals, SRL has posted an average EPS of Rs. 1.21 and an average RoNW of 7.47. If we consider FY18 earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 95 plus. Thus it is exorbitantly priced. SRL is in highly competitive business that has high volume/low margin scenario.

PEERS COMPARISION:
As per offer documents, it has shown Oasis Tradelink and Gokul Refoils as its listed peers that are currently trading around 230 and 3 (as on 25.09.18). Oasis Tradelink is strictly not comparable as it is in manufacturing as well as marketing of edible oils.

MERCHANT BANKER’S TRACK RECORD:
On merchant banker’s front, this is 5th mandate from its stable in last three years. Out of last 4 listings 1 opened at par and the rest with a premium ranging from 2% to 11.11% on the day of listings.


Conclusion / Investment Strategy

Considering exorbitant pricing, there is no harm in giving this issue a miss.

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on Sep 25, 2018

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 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, a freelance journalist

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

The Sun Retail 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 Sun Retail IPO worth investing. The Sun Retail IPO Note sets the IPO expectations in systematic way which tells you if Sun Retail IPO good to buy (good or bad / yes or no). The IPO Forecast tells you weather to invest in Sun Retail IPO by providing IPO recommendations i.e. subscribe, avoid and neutral.


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