On Door NSE SME IPO review (May apply)

On Door NSE SME IPO review (May apply)

• ODCL is a regional Omni-channel retailer of groceries and household essentials.
• It posted losses for FY21 and FY22, turned the corner from FY23.
• The company became debt free as of August 31, 2023.
• Based on FY24 annualized earnings, the issue is greedily priced.
• Well-informed/cash surplus investors may park funds for medium to long term rewards.

ABOUT COMPANY:

On Door Concepts Ltd. (ODCL) is a fast-upcoming regional Omni-channel retailer of groceries and household essentials. The company has the advantage of being one of early entrants in the supermarket industry to offer the convenience of both the colony stores as well as hyperlocal home delivery through online orders, most of its stores in the respective areas fulfil the on-line orders from their respective shelves.

ODCL opened first store in Bhopal, Madhya Pradesh in January 2015. As of March 31, 2023, the company operates 55 stores in the cities of Madhya Pradesh. Out of 55 stores, the company owned and company operated (COCO) stores are 17 and the rest are operated through franchisee model. On and average, its stores are in the format of colony convenience stores ranging from a size of 200 sq. ft. to 3500 sq. ft. depending upon the sales potential in the respective area, availability & layout of retail space of the area, number of on line orders to be fulfilled from that store and assortment required for the catchment area of the store.

The online orders that get allocated to the store get fulfilled completely by the store inventory. This is controlled by the use of technology that has the real-time visibility of the store inventory. The products shown to the consumers on our website(www.ondoor.com) and mobile app (Ondoor – Online Grocery Shoppi) are only those products, which are available in the store mapped to their delivery location.

The company expects contribution from smaller cities to grow rapidly as Company is focusing on smaller cities with Franchise Model. It opens new stores using a cluster approach on the basis of adjacencies and focusing on an efficient supply chain, targeting densely-populated residential areas with a majority of middle and aspiring upper-middle class consumers.

As of August 31, 2023, its revenue included 73.54% offline mode and 26.46% online mode contributions. It had 123 employees on its payroll as of the said date.

According to the management, it has become a debt free company as of August 31, 2023, and with the IPO funding, plans to open 100 franchise stores in the coming two years. This will help in doubling the top line with commensurate rise in bottom line as well. With franchise stores format, it saves on employee’s cost and with higher turnover, more incentives from big FMCGs will boost their bottom lines. It targets Tier-3 and Tier-4 regions for its expansion plan with cost effective business models.

ISSUE DETAILS/CAPITAL HISTORY:

The company is coming out with a maiden IPO of 1498800 equity shares of Rs. 10 each at a fixed price of Rs. 208 per share to mobilize Rs. 31.18 cr. The issue opens for subscription on October 23, 2023, and will close on October 27, 2023. The minimum application to be made is for 600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.53% of post-IPO paid-up capital of the company. ODCL is spending Rs. 3.50 cr. (11.22%) for this IPO process and from the net proceeds (excluding pre-IPO placement worth Rs. 7.39 cr.), it will utilize Rs. 20.43 cr. for working capital and Rs. 7.24 cr. for general corporate purposes.

First Overseas Capital Ltd. is the sole lead manager and Bigshare Services Pvt. Ltd. is the registrar of the issue. BHH Securities Pvt. Ltd. is the market maker for the company. The issue is underwritten 15.01% by First Overseas and 84.99% by BHH Securities.

Having issued initial equity shares at par value, the company issued/converted further equity shares in the price range of Rs. 150 – Rs. 1220.36 per share between March 2016 and February 2023. The company also did a pre-IPO placement of 285200 shares at a price of Rs. 259 per share (worth Rs. 7.39 cr.) in July 2023. The average cost of acquisition of shares by the promoters is Rs. 10.00, Rs. 370.47, and Rs. 379.78 per share.

Post-IPO, ODCL’s current paid-up equity capital of Rs. 4.15 cr. will stand enhanced to Rs. 5.65 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 117.49 cr. The small paid up equity capital post-IPO may extend migration period.

FINANCIAL PERFORMANCE:

On the financial performance front, for the last three fiscals, ODCL has posted a total revenue / net profit / – (loss) of Rs. 183.06 cr. / Rs. – (5.23) cr. (FY21), Rs. 173.33 cr. / Rs. – (5.37) cr. (FY22), and Rs. 180.15 cr. / Rs. 0.06 cr. (FY23). For 5M of FY24 ended on August 31, 2023, it earned a net profit of Rs. 0.56 cr. on a total revenue of Rs. 70.26 cr.

For the last three fiscals, the company reported an average EPS of Rs. 14.27 and an average RoNW of 16.89%. The issue is priced at a P/BV of 1.46 based on its NAV of Rs. 142.54 as of August 31, 2023, and at a P/BV of 1.30 based on its post-IPO NAV of Rs. 159.91 per share.

If we attribute annualized FY24 earnings to post-IPO fully diluted paid-up capital of the company, then the asking price is at a P/E of 87.76 making it a greedily priced issue, discounting all near term positives. On FY23 financial performance part, there are some mismatch in bottom lines as figures differs for this (see page 48, 80 and 93). Clarification is needed from Lead Manager/management on this.

For the reported periods, ODCL has posted PAT margins of – 2.87% (FAY21), -3.10% (FY22), 7.25%?? (FY23), and 0.79% (5M-FY24). For the said corresponding periods, its RoCE margins were – 5.64%, – 10.49%, 50.90% and 1.62%. According to the management, after turning debt free, it is on a fast forward mode and is confident of posting good numbers for coming years.

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 Osia Hyper Retail as their listed peer. It is trading at a P/E of 54.26 (as of October 18, 2023). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORD:

This is the 19th mandate from First Overseas in the last three fiscals (including the ongoing one). Out of the last 10 listings, 1 opened at discount, 1 at par and the rest with premiums ranging from 0.04% to 43.53% on the day of listing.

Conclusion / Investment Strategy

The company posted losses for FY21 and FY22 which are still on the balance sheet. Hefty premiums collected for equity issues has helped it to post positive NAV. Based on annualized FY24 earnings, the issue appears greedily priced. The management is confident of improving numbers in coming years as it has become debt free. Well-informed/cash surplus investors may park funds for medium to long-term rewards.

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