Marinetrans NSE SME IPO review (Avoid)

• MIL is a third party intermediary for Marinetrans related logistics services.
• It has posted inconsistency in its financial performance.
• The offer document has many anomalies on financial and other matters.
• It has surprised with the financial data of just 2 months of FY24.
• There is no harm in skipping this pricey bet.

PREFACE:
The company is going public with the documents that has many anomalies on financial data, fiscal year’s references, capital structure etc. Well this is lapse on the part of Lead Manager, on financial performance aspect, the company has shown inconsistency in working. Surprisingly, it has given working of just two months of FY24 i.e. for the period ended on May 31, 2023, and is missing its NAV data on the said date in the offer document. Anomalies were noticed on offer document pages no. 46, 47, 57, 58, 74, 75, 176, 177, 178, 179, 180.

ABOUT COMPANY:
Marinetrans India Ltd. (MIL) initially started as a freight forwarder, then went to Door-to-Door Delivery and 3PL services for the logistics industry via informal arrangement with the third-party service providers. ‘Marinetrans’, the name aptly suggests, the business of specializing in sea freight forwarding.

It offers its customers a comprehensive range of transport management and freight-related services. MIL’s services encompass Freight Forwarding, including both sea freight and air freight. Additionally, it has informal partnerships with various intermediaries to provide ancillary services such as Transportation, Multimodal Transportation, Project cargo handling, Third Party Logistics, Packaging, loading/unloading, and unpacking of items. These additional services enable it to provide end-to-end solutions and other value-added services that cater to customers’ diverse needs.

MIL’s primary objective is to ensure the safe transportation and delivery of goods from start to finish. The company mainly operates through JNPT, Nhava Sheva, Mundra, Kandla, Chennai, Vizag, etc. and can take cargo from any location in India to across the world. The Company is mainly responsible for obtaining and confirming the Sales Booking Request, Confirming the Shipping Line, ensuring Direct Customer Transport, Stuffing, and ensuring transportation in dock, and coordinating with the customer until the delivery of the goods.

Since MIL is majorly a point of contact between the Shipping Line, and the customer, the Company does not per se operate through ports. It is purely dependent on various third party logistics providers for transportation, custom clearances, and delivery of cargo to end place. Through the informal tie-ups with the various logistic providers, the Company is in a position to cater for exports in India as well as out of India. MIL is purely a third party contract intermediary company and playing with high risks.

The company does not have a license of Custom House Agent (CHA) and thus outsources the job to CHA forwarder. An internal team (Customer Service and Dispatch Dept.) is responsible for appointing a CHA forwarder to handle all the customs clearance procedures on behalf of the customer. The company acts as an intermediary between customer and the appointed CHA forwarder to carry out its business process. As of the date of filing this offer document, it had 46 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 4200000 shares of Rs. 10 each at a fixed price of Rs. 26 per share. It mulls mobilizing Rs. 10.92 cr. The issue opens for subscription on November 30, 2023, and will close on December 05, 2023. The minimum application to be made is for 4000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 33% of the post-IPO paid-up capital of the company.

MIL is spending Rs. 0.59 cr. for this IPO process, and from the net proceeds of the IPO funds, it will utilize Rs. 7.87 cr. for working capital, and Rs. 2.46 cr. for general corporate purposes. After reserving 216000 shares for the market maker, the company has allocated net portion of the IPO as not more than 50% to Retail Investors and not more than 50% for Non-Retail investors.

The issue is solely lead managed by Swaraj Shares and Securities Pvt. Ltd. and Skyline Financial Services Pvt. Ltd. is the registrar of the issue. NNM Securities Pvt. Ltd. is the market maker for the company.

Having issued initial equity shares at par, the company allotted further equity shares at a fixed price of Rs. 135.26 per share in May 2014. It has also issued bonus shares in the ratio of 23.485 for 1 in February 2011 and 20 for 1 in December 2022. The average cost of acquisition of shares by the promoters is Rs. 0.46, and Rs. 1.96 per share.

Post-IPO, MIL’s current paid-up equity capital of Rs. 8.53 cr. will stand enhanced to Rs. 12.73 cr. Based on the upper cap of IPO price band, the company is looking for a market cap of Rs. 33.09 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, MIL has (on a consolidated basis) posted a total income/net profit of Rs. 96.13 cr. / Rs. 0.79 cr. (FY21), Rs. 203.27 cr. / Rs. 1.86 cr. (FY22), and Rs. 150.37 cr. / Rs. 1.53 cr. (FY23). For 2M of FY24, it earned a net profit of Rs. 0.14 cr. on a total income of Rs. 13.84 cr.

For the last three fiscals, the company has reported an average EPS of Rs. 2.44 and an average RoNW of 10.09%. The issue is priced at a P/BV of 1.38 based on its NAV of Rs. 18.81 as of March 31, 2023, and at a P/BV of 1.22 based on its post-IPO NAV of Rs. 21.29 per share. The offer document missing NAV details as of May 31, 2023.

If we attribute consolidated super FY24 annualized earnings to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 39.39. Thus the IPO appears exorbitantly priced.

POINTS OF MAJOR CONCERN:
1. Rs. 5.10 cr. indirect tax proceedings against company.
2. Outstanding of Rs. 3.82 cr. from creditors as of March 31, 2023.
3. Company’s operations are based on third party contracts that bears a major risk.

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 shown Cargosol Logi, Cargotrans Maritime, Allcargo Logi., and Total Transport as their listed peers. They are trading at a P/E of 12.58, 15.57, 24.67, and 23.47 (as of November 24, 2023). However, it is not comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORD:
This is the 4th mandate from Swaraj Shares in the ongoing fiscal. Out of the last 3 listings, 1 listed at a discount, and the rest listed at premiums ranging from 62.65% to 90% on the day of listing.

Conclusion / Investment Strategy
The company is a third party Marinetrans logistics service provider. It has posted inconsistency in its financial performances for the reported periods. Based on its FY24 annualized earnings, the issue is exorbitantly priced. There is no harm in skipping this pricey bet.

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