Trident Lifeline BSE SME IPO review (Avoid)

•    TLL is engaged in pharma product distribution and third-party manufacturing contracts.
  •    It has posted bumper results for FY22.
  •    Based on FY22 earnings, the issue is aggressively priced. 
  •    There is no harm in skipping this pricy issue. 

ABOUT COMPANY:
Trident Lifeline Ltd. (TLL) is engaged in the pharmaceutical business ethical marketing in domestic as well as international markets. It is also engaged in the distribution of pharmaceutical products through the third-party distribution network. The company offers a wide range of pharmaceutical formulations and products manufactured on contract manufacturing under a loan license. TLL operates in India as well as African, Latin American and East Indian Countries.

TLL deals in Capsules, Tablets, Liquid Ointment, Gel, Ice Gel, Mouthwash, Paste, Solution, Suspension, Dry powders, and Toothpaste. Its product portfolio comprises a wide range of drugs like Anti-Bacterial, Anti Diarrheal, Anti-Fungal, Anti Malerial, Anti Diabetic, Dental Cure, Proton Pump Inhibitor, Anti Protozol, Anti Histamine, Anti-Hypertensive drugs, Anti Lipidemic Drug, Anti Parasitic, Multivitamin, Multimineral Nyteraceutical and Non-steroidal anti-inflammatory drug (NSAIDS). TLL’s product portfolio consists of 832 products, as on May 31, 2022. It operates under different brand names across the globe. As on May 31, 2022, it had 267 products registered in a total of 8 countries. As on May 31, 2022, a total of 565 products are under the process of registration in 11 countries.

Currently, TLL is engaged in the business of marketing pharmaceutical products. It has obtained necessary approvals from FDA for getting the manufacture of formulation by contract manufacturers on Loan License or on a principle-to-principle basis. It also takes the necessary Trademark approvals & registrations wherever required. As of May 31, 2022, it had 30 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its need for working capital (Rs. 20.50 cr.), expenses for product registration in international markets (Rs. 5.14 cr.), and general corporate purposes (Rs. 6.70 cr.), TLL is coming out with a maiden IPO of 3499200 equity shares of Rs. 10 each at a fixed price band of Rs. 101.00 per share to mobilize Rs. 35.34 cr. The issue opens for subscription on September 26, 2022, and will close on September 29, 2022. The minimum application is to be made for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 30.43% of the post-IPO paid-up equity capital of the company. The company is spending Rs. 3.00 cr. for this IPO process. This indicates the fully structured nature of the IPO. 

The issue is solely lead managed by Beeline Capital Advisors Services Pvt. Ltd., and Link Intime India Pvt. Ltd. is the registrar to the issue. Sunflower Broking Pvt. Ltd. is the market maker for the company.

The company has issued/converted entire equity shares at par so far. The average cost of acquisition of shares by the promoters is Rs. 10.00 per share.

Post this IPO, TLL’s paid-up equity capital of Rs. 8.00 cr. will stand enhanced to Rs. 11.50 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 116.14 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, TLL has (on a standalone basis) reported a turnover/net profit – (loss) of Rs. 5.01 cr. / Rs. – (0.80) cr. (FY20), Rs. 9.78 cr. / Rs. 0.63 cr. (FY21), and Rs. 22.37 cr. / Rs. 2.27 cr. (FY22). On a consolidated basis, it earned a net profit of Rs. 2.25 cr. on a turnover of Rs. 22.37 cr. for FY22. Super earnings in a pre-IPO year appear to be a window dressing.

For the last three fiscals, TLL has posted an average EPS of Rs. 1.98 and an average RoNW of NA%. The issue is priced at a P/BV of 16.83 based on its NAV of Rs. 6.00 as of March 31, 2022, and at a P/BV of 2.89 based on its post-IPO NAV of Rs. 34.91 per share.

If we attribute FY22 earnings on post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 51.53. Thus the issue is aggressively priced.

COMPARISON WITH LISTED PEERS:
As per the offer documents, TLL has shown Vaishali Pharma and Chandra Bhagat Pharma as their listed peers. They are currently quoting at a P/E of 21.86, and 100.24 (as of September 22, 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 4th mandate from Beeline Capital in the current fiscal. Out of the last 2 listings, both opened with premiums ranging from 38.89% to 63.64% on the day of listing.

Conclusion / Investment Strategy

TLL is operating in a highly competitive segment with third-party contract manufacturing. Based on FY22 earnings, the issue is aggressively priced. There is no harm in skipping this pricy issue.

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