Quality Foils NSE SME IPO review (May apply)
• QFIL is engaged in the manufacturing and export of cold rolled SS Stripes/coils/pipes.
• It has posted an average financial performance so far.
• The tiny paid-up equity post IPO indicates longer gestation for migration to the mainboard.
• Based on its FY23 earnings, the issue is lucratively priced.
• Well-informed investors may lap it up for the medium to long-term rewards.
Quality Foils (India) Ltd. (QFIL) is a manufacturer and exporter of Cold Rolled Stainless Steel Strips/ Coils and Stainless Steel Flexible Hoses/pipes. The Company uses raw materials of premium quality i.e. Hot Rolled Stainless Steel Coils/Strips mainly from Jindal Stainless Hissar Limited, Hissar.
QFIL is one of the growing manufacturers and exporters of Cold Rolled Stainless Steel Strips/ Coils and Stainless Steel Flexible hose pipes in India having over thirty years of experience in the manufacturing of stainless steel products in two broad categories: 1. Cold Rolled Stainless Steel Coils/Strips; and 2 Stainless Steel Flexible Hose Pipes. It sells its products under the “Quality” brand.
The company supplies its Products I.e. Cold Rolled Stainless Steel Coils/Strips for the manufacture of SS Tube/Pipe, Utensils, Cutlery, Kitchen Sinks, Stainless Steel Flexible Hoses and Automobile components and Flexible Hose pipes to major applications such as high temp & medium pressure for Hydraulic Oil, Hot Water, Steam & Gas applications, chemical resistant, exhaust systems of steel, power, petrochemical, sugar, automobile and many other heavy engineering sectors. As of March 01, 2023, it had 157 employees on its payroll.
ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 754000 equity shares of Rs. 10 each at a fixed price of Rs. 60 per share to mobilize Rs. 4.52 cr. The issue opens for subscription on March 14, 2023, and will close on March 16, 2023. The minimum application to be made is for 2000 shares and in multiples thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.42% of the post-IPO paid-up capital of the company. QFIL is spending Rs. 0.40 cr. and from the net proceeds, it will utilize Rs. 1.51 cr. for capex on new machinery, Rs. 2.25 cr. for working capital, and Rs. 0.36 cr. for general corporate purposes.
Khambatta Securities Ltd. is the sole lead manager and the market maker and Bigshare Services Pvt. Ltd. is the registrar of the issue.
Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 60 – Rs. 115 per share (on the basis of Rs. 10 FV) between January 2006 and February 2012. It has also issued bonus shares in the ratio of 1 for 2 in October 2022. The average cost of acquisition of shares by the promoters is Rs. 9.08 and Rs. 22.63 per share.
Post-IPO, QFIL’s current paid-up equity capital of Rs. 2.10 cr. will stand enhanced to Rs. 2.85 c. Based on the IPO pricing, the company is looking for a market cap of Rs. 17.12 cr.
On the financial performance front, for the last three fiscals, QFIL has posted a turnover/net profit of Rs. 152.11 cr. / Rs. 1.08 cr. (FY20), Rs. 124.37 cr. / Rs. 0.96 cr. (FY21), and Rs. 180.31 cr. / Rs. 1.62 cr. (FY22). For H1 of FY23 ended on September 30, 2022, it earned a net profit of Rs. 2.06 cr. on a turnover of Rs. 104.72 cr.
For the last three fiscals, the company has reported an average EPS of Rs. 6.23 and an average RoNW of 6.71%. The issue is priced at a P/BV of 0.56 based on its NAV of Rs. 106.54 as of September 30, 2022, and at a P/BV of 0.64 based on its post-IPO NAV of Rs. 94.24 per share. It suffered a minor setback for FY21 following the Pandemic.
If we annualize FY23 super earnings and attribute them to post-IPO fully diluted paid-up equity capital, the asking price is at a P/E of 4.16. Thus the issue is lucratively priced. Based on FY22 earnings, the asking price is at a P/E of 10.56 indicating a fully priced offer.
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 no listed peers to compare with.
MERCHANT BANKER’S TRACK RECORD:
This is the 4th mandate from Khambatta Securities in the last five fiscals (including the ongoing one). Out of the last 2 listings, all were listed at premiums ranging from 0.61% to 16.67% on the listing date.
Conclusion / Investment Strategy
QFIL is a small player in manufacturing cold roll SS stipes/coils/rolls and pipes. It has marked consistent growth in its performance except for the FY21 setback due to the Pandemic. Small paid-up equity post IPO indicates longer gestation for migration to the mainboard. Based on its FY23 super earnings, the issue is lucratively priced while based on FY22 earnings it is fully priced. Well-informed investors may lap it up for the medium to long-term rewards.
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.