Srivasavi Adhesive NSE SME IPO review (May apply)
• SATL is engaged in industrial specialty self-adhesive tape manufacturing and marketing.
• It has posted steady growth in its top and bottom lines for the reported periods.
• Based on its latest financials, the issue appears fully priced.
• Well-informed investors may consider parking funds for the medium to long term.
Srivasavi Adhesive Tapes Ltd. (SATL) is engaged in manufacturing/ coating, converting and Die cuts of industrial Specialty self-adhesive tapes, It does customized die cuts of Films, Foams and allied products catering to various industries such as Automotive, Locomotives, Aerospace, Defence, Electrical & Electronics, Renewable Energy, Print & Paper, Food & Pharma, FMCG, White & Brown Goods, Furniture, Retail, Construction, Infrastructure, Sports & Fitness Equipment, Textiles & Leather Industries serves a wide range of pressure sensitive adhesive tapes, BOPP tapes, Eco-Friendly paper Tapes, Filament tapes, Double Side tapes, Packaging tapes, Specialty Protection tapes, Surface Protection tapes, Masking tapes, Specialty Foams/ Films.
The company has two business divisions (i) domestic sales; and (ii) exports. It has a presence in 23 states for the domestic market based on sales made for the period ended September 30, 2022. Internationally it supplies products in 13 countries such as Egypt, France, Indonesia, Kuwait, Poland, Qatar, Spain, Australia, Italy, South Africa, Sri Lanka, the United State of America and UAE based on sales made for the period ended September 30, 2022.
SATL is also engaged in manufacturing products for third-party customers and the same is supplied according to their specific branding requirements. Its product portfolio includes industrial speciality self-adhesive tapes, which are made out of film, foam, foil, fabric and paper, with different kinds of adhesive systems to suit industrial applications and specification-oriented adhesive tapes. The company make Filament tapes, Fibreglass fabric tapes, polyester tapes, cotton fabric tapes, Double-sided tapes, scrim tapes, reinforced foil tape, reinforced paper tape, high-temperature resistant polyester tapes, Aluminum foil tapes, ECO-friendly paper tapes, BOPP Packaging tapes, Protection tapes, Masking tapes, Foams Tapes etc. As of September 30, 2022, it had 96 employees on its payroll.
ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 3780000 equity shares of Rs. 10 each at a fixed price of Rs.41 per share to mobilize Rs. 15.50 cr. The issue opens for subscription on February 23. 2023, and will close on February 28, 2023. The minimum application to be made is for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.67% of the post-issue paid-up capital of the company. SATL is spending Rs. 1.56 cr. for this IPO process and from the net proceeds, it will utilize Rs. 10.84 cr. for working capital and Rs. 3.10 cr. for general corporate purposes.
Shreni Shares Pvt. Ltd. is the sole lead manager as well as the market maker and Bigshare Services Pvt. Ltd. is the registrar of the issue.
The company has issued entire equity shares at a par value so far. It has also issued bonus shares in the ratio of 22 for 3 in September 2022. The average cost of acquisition of shares by the promoters is Rs. 1.17 and Rs. 1.20 per share.
Post-IPO, SATL’s current paid-up equity capital of Rs. 10.39 cr. will stand enhanced to Rs. 14.17 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 58.11 cr.
On the financial performance front, for the last three fiscals, SATL has posted a turnover/net profit of Rs. 46.35 cr. / Rs. 1.01 cr. (FY20), Rs. 56.67 cr. / Rs. 1.87 cr. (FY21), and Rs. 63.92 cr. / Rs. 3.62 cr. (FY22). For H1 of FY23 ended on September 30, 2022, it earned a net profit of Rs. 1.81 cr. on a turnover of Rs. 30.73 cr. Thus the company has posted growth in its top and bottom lines for the last three fiscals. However, a sudden boost in its bottom line for FY22 raises eyebrows.
For the last three fiscals, SATL has reported an average EPS of Rs. 2.50 and an average RoNW of 29.93%. The issue is priced at a P/BV of 3.48 based on its NAV of Rs. 11.78 as of September 30, 2022, and at a P/BV of 2.22 based on its post-IPO NAV of Rs. 18.49 per share.
If we annualize FY23 earnings and attribute it to the post-IPO fully diluted paid-up equity capital, the asking price is at a P/E of 16.08.
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, the company has shown Hindustan Adhesive and 3M India as its listed peers, but based on their operational size, it does not consider them comparable with it as they are not truly comparable on an apple-to-apple basis. Both these companies are trading at a P/E of 16.31 and 62.77 (as of February 22, 2023).
MERCHANT BANKER’S TRACK RECORD:
This is the 18th mandate from Shreni Shares in the last three fiscals (including the ongoing one). Out of the last 10 listings, all were listed at premiums ranging from 2.45% to 101.18% on the listing date.
Conclusion / Investment Strategy
The company is one of the players in industrial specialty self-adhesive tapes and has posted growth in its working for the reported periods. Based on its latest financials, the issue appears fully priced. Well-informed investors may consider parking funds for the medium to long term.
Review By Dilip Davda on Feb 22, 2023
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.