Rajgor Castor NSE SME IPO review (May apply)

Rajgor Castor NSE SME IPO review (May apply)

• RCDL is in the business of castor oil related derivatives.
• Post the pandemic, its performance has improved and poised for bright prospects.
• Based on FY24 annualized earnings, the issue appears fully priced.
• Well-informed investors may park funds for long-term rewards.

ABOUT COMPANY:

Rajgor Castor Derivatives Ltd. (RCDL) is in the business of castor oil related derivatives. Till December 2021, the Company had leased out the Castor plant – Harij having installed capacity of 450 MT per day to its then Holding Company i.e., M/s. Mangalam Global Enterprise Limited vide lease deed dated 27th October, 2018. Prior to December 2021, it was engaged in the business of trading of agro commodity. However, from January, 2022 current promoters along with their family members (collectively referred to as Rajgor family) purchased entire stake of M/s. Mangalam Global Enterprise Limited. Since then, Rajgor family has been actively managing the business of manufacturing of Castor Oil, Castor Oil cake, High Protein Oil cake in the Castor Plant – Harij along with trading of agro-commodity which amounts to very small portion of its revenue from operation in current financial year. RCDL is selling its products under “Rajgor” brand name.

RCDL has commenced manufacturing of Refined Castor Oil First Stage Grade (F.S.G.), Castor De-Oiled Cake and High Protein Castor De-Oiled Cake for the domestic market. It is currently operating on a B2B business Model and offer its customers Castor Oil and its derivatives. As currently it is operating under a B2B business Model, major focus is on operations relating to quality control, inventory management and business development. Being a customer centric company, our prime focus is to attain the utmost client satisfaction by offering them quality products. As of July 31, 2023, it had 60 employees on its payroll.

Castor oil is a yellow viscous liquid free from suspended matter and insoluble in water. It is produced by refining commercial grade Castor Oil after undertaking bleaching and filtering process. Castor oil has multiple industrial applications and is extensively demanded in Lubricants, Paints, Pharmaceuticals, Cable insulators, Sealants, Inks, Rubber and Textiles etc. It is also used to relief Constipation, Eyelashes grow, Hair grow, Skin moisturizer and to improve immunity function. It is also used for applying on food grains to protect from the insects/fungus. Castor De-Oil Cake is fertilizer consisting of high content of Nitrogen, Phosphoric Acid, Potash and moisture retention and it is also an organic fertilizer which can be used as alternatives to chemical fertilizer. It is simple manure, which acts progressively that encourages soil microbial activity. High Protein Castor De Oiled Cake is an organic manure which enhances the fertility of the soil without causing any damage or decay.

ISSUE DETAILS/CAPITAL HISTORY:

The company is coming out with a maiden combo IPO 9561000 equity shares of Rs. 10 each (worth Rs. 47.81 cr. at the upper cap) via book-building route. It consists of 8895000 fresh equity shares (worth Rs. 44.48 cr. at upper cap) and 666000 shares (worth Rs. 3.33 cr. at upper cap) by Offer for Sale (OFS). RCDL has announced a price band of Rs. 47 – Rs. 50 per share. The issue opens for subscription on October 17, 2023, and will close on October 20, 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 39.98% of the post-IPO paid-up equity capital of the company. From the net proceeds of the fresh equity share issue, the company will utilize Rs. 29.92 cr. for working capital, and the rest for general corporate purposes.

After reserving 501000 equity shares for the market maker, it has allocated not more than 4524000 shares for QIBs, not less than 1362000 shares for HNIs, and not less than 3174000 shares for Retail investors.

Beeline Capital Advisors Pvt. Ltd. is the sole lead manager and Link Intime India Pvt. Ltd. is the registrar of the issue. Beeline group’s Spread X Securities Pvt. Ltd. is the market maker.

Having issued initial equity shares at par, the company issued further equity shares in the price range of Rs. 80.00 – Rs. 370.00 between March 2019 and March 2023. It has also issued bonus shares in the ratio of 6 for 1 in July 2023. The average cost of acquisition of shares by the promoters is Rs. 11.38, Rs. 12.92, and Rs. 17.67 per share.

Post-IPO, RCDL’s current paid-up equity capital of Rs. 15.02 cr. will stand enhanced to Rs. 23.92 cr. Based on the upper price band, the company is looking for a market cap of Rs. 119.58 cr.

FINANCIAL PERFORMANCE:

On the financial performance front, for the last four fiscals, RCDL has posted a total income/net profit/- (loss) of Rs. 14.97 cr. / Rs. – (0.97) cr. (FY20), Rs. 11.01 cr. / Rs. – (1.80) cr. (FY21), Rs. 40.91 cr. / Rs. 0.52 cr. (FY22), and Rs. 428.87 cr. / Rs. 5.55 cr. (FY23). For Q1 of FY24 ended on June 30, 2023, it earned a net profit of Rs. 1.93 cr. on a turnover of Rs. 112.76 cr.

For the last three fiscals, the company has reported an average EPS of Rs. 13.50 and an average RoNW of 0.28%. The issue is priced at a P/BV of 2.94 based on its NAV of Rs. 17.03 as of June 30, 2023. The IPO ad is missing data on its post-IPO NAV.

If we attribute annualized FY24 earnings to the post-IPO fully diluted paid-up equity capital of the company, then the asking price is at a P/E of 15.48. Thus the issue appears fully priced.

RCDL’s PAT margins were – (18.49) % (FY21), 1.32% (FY22), 1.29% (FY23) and 1.71% (Q1-FY24), and RoCE margins for the said corresponding periods were – (0.92) %, 12.03%, 22.97% and 5.36% respectively.

DIVIDEND POLICY:

The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:

As per the offer document, the company has shown Jayant Agro and NK Ind., as their listed peers. They are trading at a P/E of 17.56 and 00 (as of October 11, 2023). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORD:

This is the 23rd mandate from Beeline Capital in the last two fiscals (including the ongoing one). Out of the last 10 listings, all listed with premiums ranging from 0.04 % to 85.71 % on the day of listing.

Conclusion / Investment Strategy

RCDL is in the business of castor oil related derivatives that has huge and growing demand. The company scaled up its operations post the pandemic and is poised for bright prospects ahead. Based on FY24 annualized earnings, the issue appears fully priced. Well-informed investors may park funds for long-term rewards.
Review By Dilip Davda on October 12, 2023

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