Command Polymers BSE SME IPO review (Avoid)

Command Polymers BSE SME IPO review (Avoid)

• CPL is in the business of manufacturing and trading polymer-based products.
• So far it has reported an average financial performance.
• On the bases of annualized FY23 earnings, the issue is priced exorbitantly.
• The company is operating in a highly competitive and fragmented segment.
• There is no harm in skipping this pricey issue.

 

ABOUT COMPANY:

Command Polymers Ltd. (CPL) is engaged in the business of Marketing and Manufacturing Polymer-based products primarily Polythene LF tubes, Tarpaulin sheets, Polyester Fabrics and other polymers. CPL’s products have a wide variety of applications in several industries such as Industrial packaging industries, the Food industry etc. It generates 67% of its revenue from manufacturing activities and the rest from trading in related materials.

As of December 31, 2022, it had 14 employees on its payroll. It also employs part-time local labourers as and when needed.

ISSUE DETAILS/CAPITAL HISTORY:

The company is coming out with a maiden IPO of 2532000 equity shares of Rs. 10 each at a fixed price of Rs. 28 per share to mobilize Rs. 7.09 cr. The issue opens for subscription on March 17, 2023, and will close on March 21, 2023. The minimum application to be made is for 4000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 27% of the post-issue paid-up capital of the company. CPL is spending Rs. 0.52 cr. for this IPO process and from the net proceedings, it will utilize Rs. 4.13 cr. for working capital and Rs. 1.80 cr. for repayment of loans, and Rs. 0.64 cr. for general corporate purposes.

Aryaman Financial Services Ltd. is the sole lead manager and KFin Technologies Ltd. is the registrar of the issue. Aryaman group company Aryaman Capital Markets Ltd. is the market maker for the company.

Having issued most of its equity shares at par, the company also raised further equity at a price of Rs. 100 per share in February 2009. The average cost of the acquisition of shares by the promoters is Rs. 13.50 per share.

Post-IPO, CPL’s current paid-up equity capital of Rs. 6.85 cr. will stand enhanced to Rs.9.38 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 26.26 cr.

FINANCIAL PERFORMANCE:

On the financial performance front, for the last three fiscals, CPL has posted a turnover/net profit of Rs. 10.90 cr. / Rs. 0.09 cr. (FY20), Rs. 16.37 cr. / Rs. 0.20 cr. (FY21), and Rs. 19.49 cr. / Rs. 0.30 cr. (FY22). For 3Qs of FY23 ended on December 31, 2022, it earned a net profit of Rs. 0.16 cr. on a turnover of Rs. 14.60 cr.

Its EBITDA margins have declined from 14.66% as of March 31, 2020, to 6.48% as of December 31, 2022, and RoCE has declined from 3.93% to 0.06% for the said periods. Its net debt to EBITDA ratio is at 6.48 as of December 31, 2022, which raises major concerns.

For the last three fiscals, CPL has reported an average EPS of Rs. 0.34 and an average RoNW of 2.43%. The issue is priced at a P/BV of 1.96 based on its NAV of Rs. 14.30 as of December 31, 2022, and at a P/BV of 1.56 based on its post-IPO NAV of Rs. 18.00 per share.

If we annualize FY23 earnings and attribute it to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 121.74. Thus the issue is exorbitantly priced.

DIVIDEND POLICY:

The company has not declared any dividends for 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, the company has shown G M Polyplast as their listed peers. It is quoting at a P/E of NA (as of March 15, 2023). However, they are not truly comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORD:

This is the 17th mandate from Aryaman Financial in the last three fiscals (including the ongoing one). Out of the last 10 listings, 2 opened at par and the rest were listed at premiums ranging from 0.02% to 27.18% on the listing date.

Conclusion / Investment Strategy

The company is operating in a highly competitive and fragmented segment. It has posted an average financial performance so far. Based on its FY23 annualized earnings, the issue is priced exorbitantly. There is no harm in skipping this pricey bet.

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