Viaz Tyres NSE SME IPO review (May apply)
• VTL is in the business of manufacturing rubber tubes for all transport modes.
• It has also entered into bicycle tyres/oil/auto parts etc. with third-party products supply.
• After a static performance for FY21 and FY22, it marked a boost in its top and bottom lines.
• Based on its recent financial data, the issue is fully priced.
• Well-informed investors may consider investment for long-term rewards.
ABOUT COMPANY:
Viaz Tyres Ltd. (VTL) is engaged in the manufacturing of rubber tubes for bicycles, two and three-wheelers, passenger vehicles and heavy-load industrial vehicles. It also deals in ancillary products like Off the Road (OTR) Tyre tubes and Animal Driven Vehicle (ADV) Tubes, Engine Oil and Grease on white labelling bases. Further, it has recently started selling bicycle tyres which VTL gets manufactured on a job-work basis, depending upon the market demands. The company sells rubber tubes, bicycle tyres and ancillary products under the brand name “VIAZ”. VTL sells its products in domestic as well as international markets. In order to capture a higher market share, it is developing an alternate brand “CVAZ”.
The company has recently ventured into trading of Tyres through an exclusive distributorship of Maxxis Rubbers Private Limited tyres for Turkey. It has an exclusive distributorship for selling tyres under the brand name Maxxis Rubbers Private Limited, for the territorial limits of Turkey. It started the said business operations in the current fiscal.
As of September 30, 2022, VTL has 15 domestic distributors for rubber tubes across India. Its distribution network is spread across 19 states, namely, Andhra Pradesh, Assam, Bihar, Chhattisgarh, Delhi, Gujarat, Haryana, Jharkhand, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Punjab, Rajasthan, Tamil Nādu, Telangana, Uttar Pradesh, Uttarakhand, West Bengal. The company also has a presence in 5 countries namely the United States of America, Turkey, Romania, the United Arab Emirates and Colombia. Further, it has 7 international distributors for the sale of rubber tubes and tyres. As of September 30, 2022, it has 37 employees on its payroll.
ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 3226000 equity shares of Rs. 10 each at a fixed price of Rs. 62 per share to mobilize Rs.20.00 cr. The issue opens for subscription on February 16, 2023, and will close on February 21, 2023. The minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.33% of the post-IPO paid-up equity capital of the company. VTL is spending Rs. 0.60 cr. for this IPO process and from the net proceeds, it will utilize Rs. 9.50 cr. for repayment/prepayment of loans, Rs. 5.00 cr. for working capital, and Rs. 4.90 cr. for general corporate purposes.
Beeline Capital Advisors Pvt. Ltd. is the sole lead manager and Link Intime India Pvt. Ltd. is the registrar of the issue. Sunflower Broking Pvt. Ltd. is the market maker for this company.
The average cost of acquisition of shares by the promoters is Rs. 5.08, Rs. 6.15, Rs. 6.57, Rs. 10.59 and Rs. 185.89 per share.
Post-IPO, VTL’s current paid-up equity capital of Rs. 9.03 cr. (9025000 shares) will stand enhanced to Rs. 12.35 cr. (12251000 shares). Based on the IPO pricing, the company is looking for a market cap of Rs. 75.96 cr.
FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, VTL has posted a turnover/net profit of Rs. 19.94 cr. / Rs. 0.15 cr. (FY20), Rs. 29.17 cr. / Rs. 0.61 cr. (FY21), and Rs. 29.33 cr. / Rs. 1.47 cr. (FY22). For H1 of FY23, it earned a net profit of Rs. 1.53 cr. on a turnover of Rs. 23.79 cr.
For the last three fiscals, the company has reported an average EPS of Rs. 1.13 and an average RoNW of 16.13%. The issue is priced at a P/BV of 5.09 based on its NAV of Rs. 12.17 as of September 30, 2022, and at a P/BV of 2.45 based on its post-IPO NAV of Rs. 25.29.
If we annualize FY23 earnings and attribute it to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 24.90. Thus the issue is fully priced based on its recent financial performance.
According to management, expansion undertaking from borrowed funding is now on steam, it is paying off significant loans that will result in interest cost savings and it needs higher working capital due to its nature of business where raw materials are purchased on a cash basis and finished goods are sold on 60 days’ credit. Funds coming from IPO for working capital will fuel its production resulting in higher top and bottom lines. Its trading activities are undertaken to boost its marketing of tubes which is its prime product. This has been well received in the markets and that has helped them to post a rise in turnover and profits. The company is now in a fast-forward mode after suffering a bit in the pandemic years.
DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy post-listing, based on its financial performance and future prospects.
COMPARISON WITH LISTED PEERS:
As per the offer document, the company has no listed peers to compare with.
MERCHANT BANKER’S TRACK RECORD:
This is the 8th mandate from Beeline Capital in the current fiscal. Out of the last 7 listings, 1 opened at par and the rest with premiums ranging from 3.96% to 63.64% on the listing day.
Conclusion / Investment Strategy
The company is one of the top five tyre tube manufacturers and has witnessed a rise in its market share. Repayment of loans will boost its profits with savings in interest costs. Trading activities are a boosting tool for their marketing plans. Management is confident of posting growth in its top and bottom lines in the coming years. Well-informed investors may consider investment for a long-term reward.
Review By Dilip Davda on Feb 12, 2023
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
