MCON Rasayan NSE SME IPO review (May apply)
• MRIL is engaged in the business of modern building materials/construction chemicals.
• It has posted average financial data so far.
• Its comparison with bigwigs like Asian Paints, Pidilite, and Kansai Nerolac is surprising.
• Based on its FY23 earnings, the issue appears fully priced.
• Only well-informed/cash surplus investors may take a risk, others can avoid it.
MCON Rasayan India Ltd. (MRIL) is engaged in the business of manufacturing, marketing and selling modern building materials and construction chemicals with a suite of more than 80 products which includes a range of construction materials and construction chemicals in both powder and liquid forms.
Its powder products such as ready mix plaster, tile adhesives, block adhesives, wall putty, micro concrete & polymer mortar, engineering non-shrink grouts and floor hardeners are widely used in the building construction segment, and liquid portfolio having products such as poly-urethane (PU) based liquid membrane, bonding agents, paints, anti-corrosive coatings, concrete admixtures and curing compounds. MRIL’s products are marketed and sold under the “MCON” brand.
Its total installed manufacturing capacity will be 36,000 MTPA for powder products and 6,000 MTPA for liquid products by the end of FY 2023. It supplies products to more than 100 distributors and dealers which in turn supply them to more than 1300 retailers based in the States of Maharashtra, Gujarat and Rajasthan who serve various developers, contractors and architects in these western regional markets. As of the date of filing this offer document, it had 105 employees on its payroll. It also employs casual labour as and when required.
ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 1710000 equity shares of Rs. 10 each at a fixed price of Rs. 40 per share to mobilize Rs. 6.84 cr. The issue opens for subscription on March 06, 2023, and will close on March 10, 2023. The minimum application is to be made for 3000 shares and in multiples thereon thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 27.13% of the post-issue paid-up capital of the company. MRIL is spending Rs. 0.70 cr. for this IPO process and from the net proceedings, it will utilize Rs. 4.50 cr. for working capital, Rs. 1.64 cr. for general corporate purposes. Higher spending indicates arranged funding.
GYR Capital Advisors Pvt. Ltd. is the sole lead manager and Link Intime India Pvt. Ltd. is the registrar of the issue. Econo Broking Pvt. Ltd. is the market maker for the company.
Having issued initial equity shares at par, the company issued further shares at a price of Rs. 40 per share in August 2022 and October 2022. It has also issued bonus shares in the ratio of 1.25 for 1 in October 2022. The average cost of acquisition of shares by the promoters is Rs. 7.64 per share.
Post-IPO, MRIL’s current paid-up equity capital of Rs. 4.59 cr. will stand enhanced to Rs. 6.30 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 25.22 cr.
On the financial performance front, for the last three fiscals, MRIL has posted a turnover/net profit of Rs. 8.97 cr. / Rs. 0.04 cr. (FY20), Rs. 9.00 cr. / Rs. 0.19 cr. (FY21), and Rs. 19.22 cr. / Rs. 0.44 cr. (FY22). For the H1 of FY23 ended on September 30, 2022, it earned a net profit of Rs. 0.86 cr. on a turnover of Rs. 13.05 cr. Super earnings for the first half raise eyebrows.
For the last three fiscals, the company reported an average EPS of Rs. 2.20 and an average RoNW of 14.06%. The issue is priced at a P/BV of 1.64 based on its NAV of Rs. 24.37 as of September 30, 2022, and at a P/BV of 1.95 based on its post-IPO NAV of Rs. 20.48 per share.
If we annualize FY23 earnings and attribute it to post-IPO fully diluted paid-up equity capital base, the asking price is at a P/E of 14.71. Thus the issue appears fully priced.
The company paid a dividend of 1% for FY21 during the reported periods of the offer document. 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, surprisingly the company has shown Asian Paints, Pidilite Ind., and Kansai Nerolac as their listed peers. They are currently trading at a P/E of 72.06, 91.02, and 52.12 (as of March 01, 2023). However, they are not truly comparable on an apple-to-apple basis.
MERCHANT BANKER’S TRACK RECORD:
This is the 13th mandate from GYR Capital in the last two fiscals (including the ongoing one). Out of the last 10 listings, all were listed at premiums ranging from 2.45% to 151.10% on the listing date.
Conclusion / Investment Strategy
MRIL is engaged in the business of modern building materials/construction chemicals which is a highly competitive and fragmented segment. Its comparison with bigwigs like Asian Paint, Pidilite, and Kansai Nerolac as peers is nothing but an eyewash. Based on its FY23 earnings the issue is fully priced. Only well-informed/cash surplus investors may take a risk, others can stay away.
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.