Valencia Nutri BSE SME (Startup) IPO review (Avoid)

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Review By Dilip Davda on December 19, 2019

•    VNL is an applied biotechnology startup for nutraceutical products.
•    The segment is turning highly competitive with domestic and MNCs fray.
•    Financial data is very poor so far, as VNL has been incurring losses.
•    Hefty premiums collected in the past has helped it to show positive NAV.
•    The issue is with negative P/E and hence worth avoiding.  

 ABOUT COMPANY:
Valencia Nutrition Ltd. (VNL) is an applied biotechnology startup operating in the niche field of researching, developing & marketing high quality, best-in-class nutraceutical products i.e. multi-nutrient functional beverages to prevent and/or manage lifestyle-related diseases.

The nutraceutical market is segmented into functional foods, functional beverages and dietary supplements. Globally, the nutraceutical market is predicted to record revenue of USD 671.30 billion by 2024, registering a CAGR of 7.5% during the forecast period (2019 - 2024). Globally, nutraceuticals are gaining importance and are becoming a part of the consumer's daily diet. Looking at the current trends, the Indian nutraceutical market is forecasted to grow from a value of US$ 2.8 Billion in 2015 to a value of US$ 8.5 Billion by 2022. A functional beverage is an emerging segment of the Indian nutraceutical industry that was valued at US$ 0.3 Billion in 2015. With wellness increasingly becoming a mainstream thought amongst the millennial population along with changing lifestyle preferences and people consciously taking preventive healthcare measures, nutraceuticals are expected to gain prolific growth in the years to come.

The Company is bridging the increasing gap between demand & supply for healthy products with its healthy, nutritious & flavoursome drinks - 'Bounce Superdrinks' & 'VitaMe Enriched Beverage'. VNL has been working in a most focused manner since the last 4 years to fully evolve a well-researched product and develop a niche brand within this nascent but high potential market. However, as per market reports, there are many players (domestic as well as MNCs) in this segment and hence it is poised for competitions.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for construction of new office-R & D center-Pre-mix Lab (Rs. 2 cr.), Key Lab equipment (Rs. 0.52 cr.), Create brand value and increase geographical reach (Rs. 1.85 cr.), General corpus fund (Rs. 0.90 cr.), VNL is coming out with a maiden IPO of 1572000 equity shares of Rs. 10 each at a fixed price of Rs. 46 per share to mobilize Rs. 7.23 cr. It comprises fresh equity issue of 1305000 shares and an offer for sale of 267000 shares. The issue opens for subscription on 23.12.19 and will close on 27.12.19. The minimum application is to be made for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME (Start-up). The issue constitutes 28.15% of the post issue paid-up capital of the company. VNL is spending Rs. 0.88 cr. for the entire issue proceeds of this IPO.

The issue is solely lead managed by Aryaman Financial Services Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Aryaman Capital Markets Ltd. is the market maker for this issue. Having issued initial equity at par, VNL has raised further equity in the price range of Rs. 600 to Rs.1353.60 per share between March 2014 and November 2019. It has also issued bonus shares in the ratio of 12 for 1 in November 2019. The average cost of acquisition of shares by the promoters is Rs. 0.77, Rs. 46.15, Rs. 53.33, Rs. 55.49 and Rs. 69.75 per share. Post issue, VNL's paid-up capital will stand enhanced from Rs. 4.28 cr. to Rs. 5.58 cr.

Thus the company mulls market capitalization of Rs. 25.69 cr.

FINANCIAL PERFORMANCE:
For the last three fiscals, VNL has posted turnover/net profits/(loss) of Rs. 0.74 cr. / Rs. -(1.47) cr. (FY17), Rs. 0.43 cr. / Rs. - (1.16)  cr. (FY18) and Rs. 1.49 cr. / Rs. - (2.14) cr. (FY19). For Q1 of FY20, it has suffered a loss of Rs. - (0.92) cr. on a turnover of Rs. 0.93 cr. Thus it has been incurring losses on a minuscule top line for all these years.

For the last three fiscals, VNL has posted an average EPS of Rs. - (7.33) and an average RoNW of - (17.93%). The issue is priced at a P/BV of 1.80 based on its NAV of Rs. 25.61 as on 30.06.19 (as per restated financial data) and at a P/BV of 2.89 based on post-IPO NAV of Rs. 15.94. Thanks to share premium account that has helped it to have positive NAV as on 30.06.19. VNL has not paid any dividends so far.

Due to negative earnings, the issue is priced at a negative P/E and hence a risky bet.

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

MERCHANT BANKER'S TRACK RECORD:
On merchant banker's front, this is the 37th mandate from its stable in the last three fiscals (including the ongoing). Out of the last 10 listings, two issues opened at a discount and the rest with a premium ranging from 0.03% to 2% on the day of listings. Thus it has a dismal track record.

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