Arvind and Company NSE SME IPO review (May apply)

Arvind and Company NSE SME IPO review (May apply)

• ACSAL is in barges chartering services and has also entered in hospitality segment.
• The company’s revenue so far has been contributed by barges chartering.
• Its hospitality business is put in operation very recently.
• Based on its FY24 earnings, the issue appears reasonably priced.
• Well-informed investors may park funds for medium to long term rewards.

ABOUT COMPANY:

Arvind and Company Shipping Agencies Ltd. (ACSAL) is a part of Arcadia group of Jamnagar. As on date, the group has a portfolio of approximately 34 barges to cater to its clients. Arcadia Group is a service provider to various port construction companies. Such services include stevedoring, Cargo handling, ship agency work, dredging, underwater trenching, underwater rock breaking, port constructions, port maintenance and other marine works.

Since Incorporation in 1987, ACSAL has been engaged in the business of Shipping and Forwarding agents. Its revenue from operations consisted of commission income charged from the clients. It “Hotel Millennium Plaza” in FY 1997 which was fetching rental income to the company till FY 2021.

The company is primarily engaged in chartering business. Chartering activities of the company mainly include chartering of Barge for commercial purposes. As on the date of this Prospectus, the company owned total of 5 (Five) Barges, i.e. “Arcadia Sumeru” (FY 2021), “KB-26” and “KB-32” (FY 2022), “KB-28” and “Arcadia Minica” (FY 2023).

Barges are flat-bottomed boats that are primarily used for Port construction, maintenance, dredging, transporting goods, placements of Cranes and Backhoes, and materials handling on inland waterways, rivers, and canals, as well as in coastal areas. They work by being towed by tugboats or pushed by push boats, which provide the propulsion needed to move the barge through the water. Barges are designed to be flat and wide to maximize their cargo capacity, and their flat bottoms allow them to operate in shallow waterways and navigate under low bridges. They come in different sizes and configurations, with some being equipped with ramps or cranes to facilitate loading and unloading of cargo. Once loaded with cargo, the barge is towed or pushed by a tugboat or push boat to its destination.

Further, as on the date of this Prospectus, ACSAL manages two hotels viz. “Hotel Millennium Plaza” and “Hotel 999” out of which “Hotel Millennium Plaza” is owned by the company since Year 1997 while Hotel “Hotel 999” is owned by the promoter, but it is managed by company based on the rent agreement dated May 09, 2023. However, both these projects are under refurbishment of 144 rooms and have become operational only recently, hence the revenue of company pertains to barges services till first half of FY24. According to management, second half of current fiscal will have contribution from hospitality sector. As of May 31, 2023, it had 16 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:

The company is coming out with a maiden IPO of 3276000 equity shares of Rs. 10 each at a fixed price of Rs. 45 per share to mobilize Rs. 14.74 cr. The issue opens for subscription on October 12, 2023, and will close on October 16, 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 26.99% of the post-IPO paid-up capital of the company. ACSAL is spending Rs. 1.90 cr. for this IPO process, and from the net proceeds, it will utilize Rs. 11.02 cr. for purchase of two barges, and Rs. 1.82 cr. for general corporate purposes.

Beeline Capital Advisors Pvt. Ltd. is the sole lead manager and Skyline Financial Services Pvt. Ltd. is the registrar of the issue. Beeline group’s Spread X Securities Pvt. Ltd. is the market maker for the company.

Having issued initial equity shares at par, the company issued further equity shares at a price of Rs. 5221 in April 2023. It has also issued bonus shares in the ratio of 750 for 1 in May 2023. The average cost of acquisition of shares by the promoters is Rs. NIL, Rs. 1.17, and Rs. 1.46 per share.

Post-IPO, ACSAL’s current paid-up equity capital of Rs. 8.86 cr. will stand enhanced to Rs. 12.14 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 54.62 cr.

FINANCIAL PERFORMANCE:

On the financial performance front, for the last three fiscals, the company posted a total revenue/net profit of Rs. 0.53 cr. / Rs. 0.24 cr. (FY21), Rs. 3.31 cr. / Rs. 1.00 cr. (FY22), and Rs. 8.41 cr. / Rs. 3.47 cr. (FY23). For two months of FY24 ended on May 31, 2023, it earned a net profit of Rs. 1.14 cr. on a turnover of Rs. 2.39 cr. The company is providing barges services to L & T,

For the last three fiscals, the company reported an average EPS of Rs. 2.81 and an average RoNW of 30.77%. The issue is priced at a P/BV of 3.61 based on its NAV of Rs. 12.48 as of May 31, 2023, and at a P/BV of 2.12 based on its post-IPO NAV of Rs. 21.26 per share.

If we annualize FY24 earnings and attribute it to post-IPO fully diluted paid-up equity capital of the company, then the asking price is at a P/E of 8.01. Thus issue appears reasonably priced.

For the reported periods, the company has posted PAT margins of 66.24% (FY21), 38.96% (FY22), 48.79% (FY23), and 48.69% (2M-FY24), and RoCE margins of 3.46%, 20.97%, 37.44%, and 8.71% respectively for corresponding periods.

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 no listed peers to compare with.

MERCHANT BANKER’S TRACK RECORD:

This is the 23rd mandate from Beeline Capital in the last three fiscals (including the ongoing one). Out of the last 10 listings, 1 opened at par and the rest listed with premiums ranging from 0.39% to 85.71% on the date of listing.

Conclusion / Investment Strategy

The company is currently having barges chartering services as its source of income. It has ventures in to hospitality segment that will be operational during second half of current fiscal. Based on FY24 annualized earnings, the issue appears reasonably priced. Well-informed investors may park funds for medium to long-term rewards.

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