Upsurge Seeds NSE SME IPO review (May apply)
• USAL is a group company of BSHSL which is also engaged in a similar business.
• Over 70% turnover comes from Groundnut seeds marketing.
• This group has changed its LM, MM and Registrar for this IPO.
• The issue is fully priced with its boosted earnings for FY22.
• It has doubled the IPO price after placing a few shares at Rs. 60 in January 2022.
USAL is a group company of Bombay Super Hybrid Seeds Ltd. (BSHSL) that came with its maiden IPO of Rs.60 per share to mobilize Rs. 10.39 cr. in April 2018 for NSE SME listing. It has fared well with high volatility and rewarded investors handsomely.
It is worthwhile to note that BSHSL has posted inconsistency in its top and bottom lines since listing. It has given bonus shares twice during these periods. Currently, the counter is in limelight with well-managed operations to pave the way for USAL IPO and lure investors.
However, for this IPO, the group gave a mandate to Finshore Management replacing Monarch Networth Capital Ltd. as LM as well as the Market Maker. It has engaged Link Intime India Pvt. Ltd. as registrar against Skyline Financial Services Pvt. Ltd. for BSHSL. On the MM front, it has now appointed Nikunj Stock Brokers Ltd. Thus the bunch of agencies is changing.
Upsurge Seeds of Agriculture Ltd. (USAL) is a technology-driven seeds Manufacturing Company engaged in the business of growing, developing, processing and marketing a variety of seeds for a range of field crops and vegetables. It is primarily involved in seed processing wherein the improved genetic materials of the breeder seed are grown and multiplied into foundation seed. Thereafter, the foundation seed undergoes the next level of processing in which the foundation seed is grown and multiplied into commercial seeds, which are then sold in the market for crop production. USAL has different variants of seeds being sold for each crop depending upon the suitability of seeds for varying agro-climatic conditions, such as water availability, crop duration and soil attributes, across different geographic regions in India.
Breeder seeds are genetically pure seeds with physical purity produced from basic nucleus seed stock and procured from the original breeder. Some of the state Government agricultural universities from which it procures breeder seeds include Mahatma Phule Krishi Vidyapeeth, Rajasthan Agricultural Research Institute, Indian Agricultural Research Institute etc.
As of March 31, 2022, the company produced seeds for more than 40 different field crops and vegetables and has operations across India covering Gujarat, Maharashtra and Rajasthan with more than 75 varieties of Crops. Its product portfolio includes crop seeds for Groundnut, Wheat, Cumin, Green Gram, Black Gram and vegetable seeds for Onion, Coriander Seeds, Fenugreek etc.
As of March 31, 2022, it has employed a total of 16 (Sixteen) full-time employees. More than 70% of its revenue is coming from Groundnut seeds.
ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs of working capital (Rs. 21.31 cr.), general corporate purposes (Rs. 1.00 cr.), USAL is coming out with a maiden IPO of 1900800 equity shares of Rs. 10 each at a fixed price of Rs. 120 per share to mobilize Rs. 22.81 cr. The issue opens for subscription on July 29, 2022, and will close on August 02, 2022. The minimum application to be made is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.92% of the post-IPO paid-up capital of the company. USAL is spending Rs. 0.50 cr. for this IPO process.
The issue is solely lead managed by Finshore Management Services Ltd., Link Intime India Pvt. Ltd. is the registrar and Nikunj Stock Brokers Ltd. is the Market Maker for this company.
Having issued initial equity at par, the company issued further equity at Rs. 60 per share in January 2022 and not it wants double the price from new investors. The average cost of acquisition of shares by the promoters is Rs. 10.00 per share.
Post-IPO, USAL’s current paid-up equity capital of Rs. 5.16 cr. will stand enhanced to Rs. 7.06 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 84.72 cr.
On the financial performance front, for the last three fiscals, USAL has reported turnover/net profits of Rs. 17.64 cr. / Rs. 0.22 cr. (FY20), Rs. 62.90 cr. / Rs. 0.85 cr. (FY21) and Rs. 75.77 cr. / Rs. 3.96 cr. (FY22). The sudden boost in the bottom line for FY22 is a bit surprising. Group company BSHSL has posted lacklustre performance with less than half the top and bottom lines for FY22.
For the last three fiscals, USAL has posted an average EPS of Rs. 6.89 and an average RoNW of 30.44%. The issue is priced at a P/BV of 5.53 based on its NAV of Rs. 21.70 as of Marcy 31, 2022, and at a P/BV of 2.49 based on its post-IPO NAV of Rs. 48.16 per share.
If we attribute FY22 boosted earnings on post IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 21.35.
The company has not declared any dividends since incorporation. It will adopt a prudent dividend policy post listing based on its financial performance and future prospects.
COMPARISON WITH LISTED PEERS:
As per the offer document, USAL has shown Bombay Super, Continental Seeds, Kaveri Seed and Mangalam Seeds as its listed peers. They are currently trading at a P/E of 36.61, 37.75, 13.63 and 19.66 (as of July 22, 2022). However, they are not truly comparable on an apple-to-apple basis.
MERCHANT BANKER’S TRACK RECORDS:
This is the 27th mandate from Finshore Management in the last five fiscals (including the ongoing one). Out of the last 10 listings, 2 opened at par and the rest with premiums ranging from 0.9% to 65.50% on the day of listings.
Conclusion / Investment Strategy
USAL has posted boosted bottom line for FY22 which is helping its IPO pricing to be around 22 P/E. Based on this ratio, the issue is fully priced. It placed shares at Rs. 60 in January 2022 and now mulls doubt the price from new investors. Of late many players have emerged in this segment raising cut-throat competition. The second IPO from a group company in a similar business raises concern. Considering all these, cash surplus/risk seekers may consider parking funds with a long-term perspective.
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 before making any actual investment decisions, based on information published here. With entry barriers, SEBI wants only well-informed investors to participate in such offers. With crazy listings in the past, SME IPOs drew the attention of investors across the board. However, as SME issues have entry barriers and continued low preference from the broking community, any reader taking decisions based on any information published here does so entirely at own risk. The above information is based on information available as on date coupled with market perceptions. The 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.