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Mega Flex NSE SME IPO review (May apply)

•    MFPL is in the business of manufacturing Leno Bags and trading in Polypropylene granules.
•    It has marked average performance with pressure on margins. 
•    Due to fragmented segments, sustainability of margins poses a major concern.
•    Based on its FY22 financial results, the issue is fully priced. 
•    Risk seeker/cash surplus investors may consider investment for the long term. 

ABOUT COMPANY:
Mega Flex Plastics Ltd. (MFPL) is primarily engaged in the manufacturing of Leno Bags which are used for packaging of agricultural produces like potatoes, onions, garlic, coconuts, fruits, and vegetables. In addition to Leno Bags, our company is also manufacturing Woven Fabric and Sutli (Fibrillated Twisted Thread). The product which we majorly manufacture i.e., Leno Bags is made from Plastic Granules and is used multiple times for storage of fruits and vegetables. The said product is widely used in Cold storage and warehouses for the storage of various products.

MFPL is operating in two segments i.e. manufacturing of Leno Bags, PP Fabrics, Sutli, and trading of Polypropylene granules.  As of the date of filing of this offer documents, it has 148 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its need for working capital (Rs. 10.17 cr.), general corporate purposes (Rs. 0.75 cr.), MFPL is coming out with a maiden IPO of 2850000 equity shares of Rs. 10 each at a fixed price of Rs. 40 per share to mobilize Rs. 11.40 cr. The issue opens for subscription on September 06, 2022, and will close on September 09, 2022. 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 26.52% of the post-issue paid-up capital of the company. MFPL is spending Rs. 0.48 cr. for this IPO process.

The issue is solely lead managed by Finshore Management Services Ltd. and Cameo Corporate Services Ltd. is the registrar to the issue. Rainbow Securities Pvt. Ltd. is the market maker for this company.

Having issued initial equity at par, the company issued further equity in the price range of Rs. 40 to Rs. 84 per share between March 2008 and October 2011. It has also issued bonus shares in the ratio of 7 for 2 in July 2022. The average cost of acquisition of shares by the promoters is Rs. 3.65, Rs. 4.34, Rs. 5.01, and Rs. 21.16 per share.

Post-IPO, MFPL’s current paid-up equity capital of Rs. 7.90 cr. will stand enhanced to Rs. 10.75 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 42.98 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, MFPL has posted turnover/net profits of Rs. 33.43 cr. / Rs. 2.20 cr. (FY20), Rs. 31.09 cr. / Rs. 1.29 cr. (FY21) and Rs. 47.39 cr. / Rs. 2.66 cr. (FY22).

For the last three fiscals, the company has reported an average EPS of Rs. 12.12 (based on a pre-bonus equity base) and an average RoNW of 7.15%. The issue is priced at a P/BV of 1.02 based on its NAV of Rs. 39.33 as of March 31, 2022, and at a P/BV of 1.01 based on its post-IPO NAV of Rs. 39.51 per share.

If we attribute FY22 earnings to post IPO fully diluted equity capital, then the asking price is at a P/E of 16.19, making it a fully priced issue. The sustainability of margins going forward is a major concern as it is operating in a highly competitive and fragmented segment. 

COMPARISON WITH LISTED PEERS:
As per offer documents, the company has no listed peers to compare with.

DIVIDEND POLICY:
The company has not declared/paid any dividend for the reported periods of the offer documents. It will adopt a prudent dividend policy post listing, based on its financial performance and future prospect.

MERCHANT BANKER’S TRACK RECORD:
This is the 29th mandate from Finshore Management in the last five fiscals (including the ongoing one). Out of the last 10 listings, 1 opened at discount, 2 at par, and the rest with premiums ranging between 0.9%% to 150% on the day of listing.