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Mafia Trends BSE SME IPO review (Avoid)

•    MTL is in the marketing of men’s and Kids’ fashion wears.
•    It has marked inconsistency in its financial performance so far.
•    With bumper earnings of FY22 the issue appears fully priced.
•    It is operating in a highly competitive and fragmented segment.
•    There is no harm in skipping this issue.

ABOUT COMPANY:
Mafia Trends Ltd. (MTL) is engaged in the business of marketing and selling Men’s & kids’ fashion such as Jeans, T-shirts, Shirts, Chinos, Formal trousers, and Formal shirts, through a chain of clothing stores under the brand name Mafia. Currently, it operates with 8 stores in 3 cities of Gujarat and has one warehouse. It operates from leased or rented properties and has no own manufacturing units.
As of the date of filing this offer document, it had 36 employees on its payroll. It operates in a highly fragmented segment with many unorganized and big players in this arena.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its need for working capital (Rs. 3.06 cr.), MTL is coming out with a maiden IPO of 1284000 equity shares of Rs. 10 each at a fixed price of Rs. 28 per share to mobilize Rs. 3.60 cr. The issue opens for subscription on September 22, 2022, and will close on September 27, 2022. The minimum application is to be made for 4000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 28.96% of the post-IPO paid-up equity capital of the company. MTL is spending Rs. 0.54 cr. for this IPO. This indicates the fully structured mode of this IPO.
The issue is solely lead managed by GYR Capital Advisors Pvt. Ltd., and Link Intime India Pvt. Ltd. is the registrar to the issue. Giriraj Stock Broking Pvt. Ltd. is the market maker for the company.
Having issued initial equity shares at par, the company issued/converted further equity shares in the price range of Rs. 30.00 to Rs. 40.00 per share between March 2019 and March 2022. It has also issued bonus shares in the ratio of 7 for 2 in May 2022. The average cost of acquisition of shares by the promoters is Rs. 2.22 and Rs. 6.28 per share.
Post this IPO, MTL’s paid-up equity capital of Rs. 3.15 cr. will stand enhanced to Rs. 4.43 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 12.41 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, MTL has reported a turnover/net profit of Rs. 11.48 cr. / Rs. 0.01 cr. (FY20), Rs. 4.01 cr. / Rs. 0.27 cr. (FY21), and Rs. 7.15 cr. / Rs. 0.82 cr. (FY22). Thus it has posted inconsistency in its top lines with rising margins that raise eyebrows.  The sustainability of such margins going forward is a major concern, as it is operating in a highly competitive segment.
For the last three fiscals, MTL has posted an average EPS of Rs. 8.00 and an average RoNW of 15.93%. The issue is priced at a P/BV of 0.57 based on its NAV of Rs. 48.80 as of March 31, 2022, and at a P/BV of 1.77 based on its post-IPO NAV of Rs. 15.81 per share. (EPS, RoNW, and pre-IPO NAV data appear to be on a pre-bonus basis)
If we attribute FY22 earnings on post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 15.21.

COMPARISON WITH LISTED PEERS:
As per the offer documents, MTL has shown V-Mart Retail and Trent Ltd. as its listed peers. They are currently trading at a P/E of 95.32, and 113.24 (as of September 19, 2022). However, they are not truly comparable on an apple-to-apple basis.

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

MERCHANT BANKER’S TRACK RECORD:
This is the 8th mandate from GYR Capital in the last two fiscals (including the ongoing one). Out of the last 6 listings, it opened with premiums ranging from 2.45% to 86.96% on the day of listing.

Conclusion / Investment Strategy
MTL is operating in a highly competitive and fragmented segment. It has posted an average performance so far. Super profits for FY22 appear to be a window dressing in a pre-IPO year to pave the way for the asking price. On the basis of the issue price, it has given data on the pre-bonus capital base, which is perhaps an eyewash. With such bumper earnings, its asking price indicates a fully priced issue. A small equity base post IPO indicates longer gestation for migration. There is no harm in skipping this issue.

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