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Wonder Fibromats NSE SME IPO review (Avoid)

Review By Dilip Davda on Jul 15, 2019

  • WFL is in the various types of the fan manufacturing business.

  • It does not own any brand, just doing franchise work.

  • Many group companies are in a similar business that may pose a conflict of interest.

  • Trade payables are almost 63% of its balance sheet of FY19.

  • It has longer trade receivable/payable cycles.

ABOUT COMPANY:

Wonder Fibromats Ltd. (WFL) is a fully integrated end-to-end product and solution suite to the original sellers of the fans wherein it provides start to end solutions for fan sellers including sourcing, manufacturing, quality testing and packaging. WFL manufactures and supplies fans to many well-known companies in India, which in turn distribute these products under their own brands.

The company is engaged in the manufacturing of ceiling fans, exhaust, pedestal and brushless DC (BLDC) fans. All the parts & components of the fans are tested stringently at its in-house quality management lab to ensure their flawless performance. Moreover, various R&D activities are conducted by its professionals to remain abreast of the latest market requirements and competition. Apart from this, it has also set up a client-satisfaction cell which is supervised by it's quality check (QC) department that reviews the complaints regarding its products directly from clients.

ISSUE DETAILS/CAPITAL STRUCTURE:

To part finance its expenditure plans for acquisition of land and site development (Rs. 4.4 cr), acquire plant and machinery (Rs. 2.9 cr.), working capital (Rs. 9 cr.) and general corpus fund (Rs. 2.36 cr.) needs, WFL is coming out with a maiden IPO of 2224000 equity shares of Rs. 10 each at a fixed price of Rs. 90 per share to mobilize Rs. 20.02 cr. The issue opens for subscription on 22.07.19 and will close on 24.07.19. Minimum application is to be made for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. WFL is spending Rs. 1.36 cr. for this IPO proceeds. Issue constitutes 26.55% of the post issue paid-up capital of the company.

So far WFL has issued entire equity at par. It has also issued bonus shares in the ratio of 2 for 1 in August 2018. The average cost of acquisition of shares by the promoters is Rs. 5.10, Rs. 5.12 and Rs. 6.35 per share. Post issue WFL's current paid-up equity capital of Rs. 6.15 cr. will stand enhanced to Rs. 8.38 cr.

The issue is solely lead managed by Navigant Corporate Advisors Ltd. while Karvy Fintech Pvt. Ltd. is the registrar to the issue. Bhaiji Portfolio Ltd. is the market maker for this issue.

MAJOR CONCERNS:

Various group companies are engaged in similar activities and hence going forward conflict of interest for this company is not ruled out. Secondly, it is in the process of registering its trademark logo. Any adversities on this aspect may derail their future plans. WFL's trade payables are nearly 63%of the total balance sheet items and raise concern. The company also has the risk of environmental regulations compliance and stringent labour laws as it runs a labour-intensive business. Its trade receivables and payables have an average period of 3.7 months. For the last three fiscals, it has posted negative cash flows.

FINANCIAL PERFORMANCE:

On the financial performance front, for the last three fiscals, it has posted turnover/net profits of Rs. 165.65 cr. / Rs. 5.09 cr. (FY17), Rs. 294.87 cr. / Rs. 7.97 cr. (FY18) and Rs. 308.02 cr. / Rs. 6.14 cr. (FY19). It has posted a sudden jump in revenue for FY18 and thereafter it is almost static. Its bottom line has shown inconsistency. This is attributed to the fluctuating cost of raw materials.

As per offer documents, for the last three fiscals, it has posted an average EPS of Rs. 22.09 and an average RoNW of 49.93% (it appears for FY17 and FY18 the data is on pre-bonus issue basis and reflects in lucrative earnings data).

The issue is priced at a P/BV of 2.77 on the basis of its NAV of Rs. 32.53 as on 31.03.19 and at a P/BV of 1.88 on the basis of post-issue NAV of Rs. 47.79. If we attribute FY19 earnings on fully diluted post issue equity, then asking price is at a P/E of 12 plus. Thus issue appears fully priced based on earnings stated.

COMPARISION WITH LISTED PEERS:

As per offer documents, WFL is showing Bajaj Electricals and Crompton Greaves Consumers as its listed peers that are currently trading at a P/Es of around 29 and 36 (as on 15.07.19). However, they are not strictly comparable on an apple to apple basis.

MERCHANT BANKER'S TRACK RECORDS:

On Lead Manager's front, this is the 16th mandate from its stable in the last four fiscals. Out of the last 10 listings, 2 opened at discount and the rest with the premiums ranging from 1.25% to 20% on the day of listing.


Conclusion / Investment Strategy

The issue appears fully priced. Its comparison with brand leaders is just an eyewash. Considering major concerns listed here above, there is no harm in giving this issue a miss. (Avoid)

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on Jul 15, 2019

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


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