Goyal Salt NSE SME IPO review (Apply)
• GSL is in the business of refining raw salt and having a variety of end products.
• It marked static bottom lines for FY21 and FY22.
• Its B2C thrust brought more rewards in the form of higher turnover and profits for FY23.
• Based on FY23 earnings, the issue appears fully priced.
• Investors may park funds for the medium to long-term rewards.
ABOUT COMPANY:
Goyal Salt Ltd. (GSL) is primarily engaged in the business of refining raw salts procured from sub-soil brine in the state of Rajasthan for use as industrial salts and edible salts. The company refines and supplies a pure, refined, and quality range of triple-refined free-flow iodized salt, industrial salt, double-fortified salt, and triple-refined half-dry salt. Its refining process does not involve any adulteration from chemicals and harmful substances. The company has well well-equipped refinery at Nawa City, adjacent to the famous Sambhar Lake. In addition to the refinery, GSL also has lease rights to harvest raw salt over 18.66 Hectares of land issued by the Government of Rajasthan in the vicinity of salt salt-producing area of Nawa City in Rajasthan. Its refinery complex area is situated in Nawa City having a total area of 1.45 Hectares of land and has dedicated space for the refining of salts, storage of raw salts procured from subsoil brine, and packaging of refined salts.
The raw material required to process refined salt is raw salt itself. The Company sources its raw material mainly from open market purchases which is around 75% of the total requirement of raw salt required for all products which are Refined Free Flow Iodized Salt, Refined Free Flow Industrial Salt, Double Fortified Salt, and Refined Half Dry Salt. In addition to the open market purchases, it sources raw materials from promoters-controlled entities and own harvesting of raw salts on the salt lands owned by it which supply around 23% and 2% respectively of the total requirement of the raw material required.
Over the past couple of years, the company has outgrown itself into the production of refined iodized salt and double-fortified salt. Edible salt, also called table salt or just salt, is a mineral, commonly consumed by humans. There are different forms of edible salt: unrefined salt, refined salt, table salt, or iodized salt. Raw salt comes in fine or larger crystals. In nature, it includes not only sodium chloride but also other vital trace minerals. The company supplies its refined salt in the packaging of half kg and one kg for home consumption and fifty kg bags and jumbo bags for industrial use.
GSL also produces/supplies industrial salt. Industrial salt is in high demand due to the diversity of applications in the soap and detergent industries, textile and dyeing industries to industries producing glass, polyester, plastics, rubber, leather, and in the chemical industry. Salt assists in cleaning gas and oil wells and is an essential component in the manufacture of paper, tires, brass, bleach, and case-hardened steel. Salt is part of the caustic soda and chloralkali processes. It is also used as an ice melter in various countries. Another use of industrial salt is in the pharmaceutical industry. Salt is mostly used in the preparation of saline solutions and the production of capsules. From making intravenous formulas to contact solutions, industrial salt is quite important for saline solutions and thus for the pharma industry. The pigment industry uses industrial salt as a filler and grinding agent during the manufacturing process. Besides these different industrial uses of salt, salt finds usage in more areas such as animal feeding salt, water softening/water treatment salt, and pool salt.
It is anticipated that the growing demand for industrial salt will be driven primarily by increasing industrialization owing to its wide range of industrial applications. In particular, demand is expected to increase from the food and beverage industry, soap and detergent industry, the chlor-alkali sector in the chemical industry as well as chemical processing, water treatment, agriculture, and dyeing.
Further GSL has supplied its products to various welfare schemes started by the Government. It has supplied products to the State Government of 3 states which are Madhya Pradesh, Uttar Pradesh, and Jharkhand. As of June 20, 2023, it had 314 employees (i.e., 31 Regular, 231 Contractual and 52 Temporary Employees).
ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 4902000 equity shares of Rs. 10 each via the book-building route. The company has announced a price band of Rs. 36 – Rs. 38 per share and mulls mobilizing Rs. 18.63 cr. at the upper cap. The issue opens for subscription on September 26, 2023, and will close on September 29, 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 27.39% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, the company will utilize Rs. 1.13 cr. for product quality enhancement, Rs. 1.06 cr. for brand creation and marketing expenses, Rs. 10.67 cr. for working capital, and the rest for general corporate purposes.
The company has reserved 246000 shares for the market maker, and up to 90000 shares for the eligible employees, and from the rest, it has allocated not more than 2199000 shares for QIBs, not less than 729000 for HNIs, and not less than 1638000 for Retail investors.
Holani Consultants Pvt. Ltd. Is the sole lead manager and Bigshare Services Pvt. Ltd. Is the registrar of the issue. Holani Consultants Pvt. Ltd. is also the market maker for the company.
Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 45 – Rs. 100 between March 2012 and December 2022. It has also issued bonus shares in the ratio of 4 for 1 in February 2023, and 1 for 5 in July 2023. The average cost of acquisition of shares by the promoters is Rs. 1.67, Rs. 4.36, Rs. 4.43, Rs. 5.44, Rs. 5.47, Rs. 5.99, Rs, 7.63, Rs. 7.70, Rs. 7.72, and Rs. 8.71 per share.
Post-IPO, GSL’s current paid-up equity capital of Rs. 13.00 cr. will stand enhanced to Rs. 17.90 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 68.02 cr.
FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, GSL has posted a total income/net profit of Rs. 60.13 cr. / Rs. 0.68 cr. (FY21), Rs. 66.15 cr. / Rs. 0.63 cr. (FY22), and Rs. 117.71 cr. / Rs. 3.54 cr. (FY23). After static earnings for FY21 and FY22, the company reaped the benefits of its B2C model with premium salt retail marketing. According to the management, the company that will be the second largest salt producer after Tata Chemical will become a household brand.
For the last three fiscals, the company has reported an average EPS of Rs. 1.61 and an average RoNW of 13.73%. The issue is priced at a P/BV of 2.54 based on its NAV of Rs. 14.94 as of March 31, 2023, and at a P/BV of 1.72 based on its post-IPO NAV of Rs. 22.12 per share (at the upper cap).
If we attribute FY23 super earnings to the post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 19.19. The issue appears fully priced with the super profits of FY23.
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 documents, the company has shown Saboo Sodium as their listed peer, it is trading at a P/E of 00 (as of September 22, 2023). However, they are not truly comparable on an apple-to-apple basis.
MERCHANT BANKER’S TRACK RECORD:
This is the 6th mandate from Holani Consultants in the last three fiscals (including the ongoing one). Out of the last 5 listings, 1 opened at a discount and the rest with premiums ranging from 4.94 % to 154.88 % of the date of listing.
Conclusion / Investment Strategy
Though the company is operating in a highly competitive and fragmented segment. It posted static bottom lines for FY21 and FY22, but its bottom line surged in FY23 with its thrust on the B2C business model. The company is endeavoring to be a household brand with premium products that will bring more rewards for the company and its stakeholders. Investors may consider parking funds for the medium to long-term rewards in this lucrative field.
Review Author
DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here. With entry barriers, SEBI wants only well-informed investors to participate in such offers. With crazy listings in the past, SME IPOs drew the attention of investors across the board. However, as SME issues have entry barriers and continued low preference from the broking community, any reader taking decisions based on any information published here does so entirely at own risk. The above information is based on information available as on date coupled with market perceptions. The Author has no plans to invest in this offer.
(SEBI registered Research Analyst-Mumbai).
About Dilip Davda
Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.
Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.
Email: dilip_davda@rediffmail.com
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