Gabriel Pet BSE SME IPO review (Avoid)

• GPSL is engaged in the manufacturing and marketing of pet straps under its own brand “Gabriel”.
• It is operating in a highly competitive and fragmented segment.
• Till August 02, 2023, it was operating as LLP firm and thereafter got converted in to a public limited company.
• The company has posted average financial performance so far.
• Based on its annualized FY24 earnings, the issue appears exorbitantly priced.
• There is no harm in skipping this pricey bet.

ABOUT COMPANY:

Gabriel Pet Straps Ltd. (GPSL) the company that was originally incorporated as Gabriel Pet Straps LLP in November 2020, got converted in to public limited company on August 02, 2023. GPSL is engaged in the manufacturing and selling of Pet Straps under its brand name of “Gabriel” widely used in packaging of heavy materials. It produces Pet Strap from 9mm to 32mm width and thickness ranging from 0.70mm to 1.30mm.

Its products, pet straps are manufactured in appropriate composition of virgin content raw material i.e., hot washed pet bottle flakes and non-virgin content raw material i.e. used pet straps grinding. The company has PAN India presence with distributors network in 10 states as of October 15, 2023.

It offers customized bulk packaging solutions to different industries such as Cotton Bales, Fiber, Packaging, Paper, Waste Cloth etc. Over the years it has developed expertise and upgraded technology by adding several automatic machineries and equipment to the plant, which has helped it boost production capacity and the quality of products. As of October 31, 2023, it had 26 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:

The company is coming out with its maiden IPO of 798000 equity shares of Rs. 10 each at a fixed price of Rs. 101 per share to mobilize Rs. 8.06 cr. The issue opens for subscription on January 31, 2024, and will close on February 02, 2024. The minimum application to be made is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 30.15% of the post-IPO paid-up capital of the company. The company is spending Rs. 0.69 cr. for this IPO process, and from the net proceeds of issue, it will utilize Rs. 1.73 cr. for repayment/prepayment of certain borrowings, Rs. 1.98 cr. for acquisition of land, Rs. 2.92 cr. for capex on solar power plant, working capital, and Rs. 0.74 cr. for general corporate purposes.

The issue is solely lead managed by Shreni Shares Ltd., and Bigshare Services Pvt. Ltd. is the registrar of the issue. Shreni Shares Ltd. is also the market maker for the company.

Having issued initial equity capital at par, it issued further equity shares at a fixed price of Rs. 432 per share in October 2023, and has also given bonus shares in the ratio of 34 for 1 in October 2023. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 10.25 per share

Post-IPO, company’s current paid-up equity capital of Rs. 1.85 cr. will stand enhanced to Rs. 2.65 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 26.73 cr.

FINANCIAL PERFORMANCE:

On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 0.08 cr. / Rs. 0.00 cr. (FY21), Rs. 9.69 cr. / Rs. 0.04 cr. (FY22), and Rs. 15.01 cr. / Rs. 0.52 cr. (FY23). For 6.5M of FY24 ended on October 15, 2023, it earns a net profit of Rs. 0.31 cr. on a total income of Rs. 9.31 cr. It marked boosted growth in its top and bottom lines for FY23 that raise eyebrows and concern over its sustainability going forward.

For the last three fiscals, it has reported an average EPS of Rs. 7.07, and an average RONW of 9.75%. The issue is priced at a P/BV of 9.18 based on its NAV of Rs. 11.00 as of October 15, 2023, and at a P/BV of 2.84 based on its post-IPO NAV of Rs. 35.54 per share.

If we attribute annualized FY24 earnings to its post-IPO fully diluted paid-p capital, then the asking price is at a P/E of 47.20. Thus the issue appears exorbitantly priced.

For the reported periods, the company has posted PAT margins of 0.00% (FY21), – (0.38) % (FY22), 3.46% (FY23), 2.79% (for period ended on 02.08.23), and 4.07% (for period ended on 15.10.23 of FY24)

DIVIDEND POLICY:

The company has not declared any dividends since incorporation. 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 Vera Synthetic as its listed peer. It is trading at a P/E of 16.3 (as of January 25, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORD:

This is the 28th mandate from Shreni Shares in the last three fiscals, out of the last 10 listings, all opened at premiums ranging from 4.94% to 143.24% on the date of listing.

Conclusion / Investment Strategy
The company is in a highly competitive and fragmented segment of straps. It was a LLP firm till August 02, 2023 and got converted in to public limited company on the said date. It has posted an average financial performance so far, and based on that the issue appears exorbitantly priced. The tiny post-IPO paid-up equity capital indicates longer gestation period. There is no harm in skipping this pricey bet.

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