Dhariwalcorp NSE SME IPO review (Avoid)

Review By Dilip Davda on July 30, 2024

•    The company is engaged in the business of trading in variety of waxes, industrial chemicals, petroleum jelly etc. 
•    It posted inconsistency in its financial performance for the reported periods. 
•    Based on FY24 super earnings, the issue appears aggressively priced. 
•    There is no harm in skipping this pricey bet.

ABOUT COMPANY:
Dhariwalcorp Ltd. engaged in the business of trading of comprehensive range of waxes, industrial chemicals, and petroleum jelly. the company is involved in processing, purchasing, selling, importing, and trading various types of wax, including Paraffin Wax, Micro Wax, Slack Wax, Carnauba Wax, Microcrystalline Waxes, Semi Refined Paraffin Wax, Yellow Beeswax, Hydrocarbon Wax, Montan Wax, Polyethylene Wax, Vegetable Wax, Residue Wax, Palm Wax, BN Micro Wax, Hydrogenated Palm Wax, Micro Slack Wax, PE Wax, Soya Wax, etc.

Its products are sold both domestically and internationally. It has a PAN India presence with 21 states and 3 Union territories for domestic market (based on sales made for the financial years ended March 31, 2024, 2023, and 2022). It has also initiated export division and is supplying products to one country, namely Nepal, based on sales made for the financial year ended March 31, 2024. To meet its PAN India presence and ensure timely supply of products, it has one processing unit and three warehouses situated at Jodhpur, Rajasthan, one warehouse situated at Bhiwandi, Maharashtra, one warehouse situated at Ahmedabad, Gujarat, and one warehouse at Mundra, Dist. Kachchh, Gujarat, respectively. It also follows an outsourcing model for running its warehouses situated at Bhiwandi, Ahmedabad, and Mundra to ensure timely delivery of products to customers across geographies.

Additionally, the Company trades in industrial chemicals such as Rubber Process Oil, Light Liquid Paraffin (LLP), Citric Acid Monohydrate, Refined Glycerin, Bitumen, Stearic Acid, and Petroleum Jelly, including Paraffin Petroleum Jelly and White Petroleum Jelly. Its product range encompasses all types of heavy and light chemicals, chemical elements and compounds, petrochemicals, industrial chemicals, mixtures, derivatives, articles, compounds, by-products, and activities of a similar nature. The company serves various industries including Plywood and Board, Paper Coating, Crayon Manufacturing, Candle Production, Textiles, Pharmaceuticals, Petroleum Jelly & Cosmetics, Tube & Tire Manufacturing, Match Production, Food Processing, and Adhesive Manufacturing. With its diverse range of products, the company plays a significant role in the supply chain of these sectors, ensuring quality products and timely delivery.

The company is engaged in wax trading business, sourcing, processing, and distribution of various types of waxes for a wide range of applications. With its focus on quality, sustainability, and customer satisfaction, the company is committed to delivering products of relevant quality that meet industry standards, ensuring customer satisfaction and trust. The company continuously seeks new ways to improve products, processes, and services, staying ahead of market trends and customer demands. As of March 31, 2024, it had 7 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 2372400 equity shares of Rs. 10 each to mobilize Rs. 25.15 cr. at the upper cap. It has announced a price band of Rs. 102 – Rs. 106 per share. The issue opens for subscription on August 01, 2024, and will close on August 05, 2024. The minimum application to be made is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.50% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 8.00 cr. for working capital, Rs. 8.10 cr. for capex on construction of warehouse, and the rest for general corporate purposes.

Having issued initial equity shares at par value, the company issued further equity shares at a price of Rs. 655.00 per share in December 2023. It has also issued bonus shares in the ratio of 50 for 1 in March 2024. The average cost of acquisition of shares by the promoters is Rs. 3.04, and Rs. 12.84 per share.

The issue is solely lead managed by Shreni Shares Ltd., and Bigshare Services Pvt. Ltd. is the registrar to the issue. Shreni Shares Ltd. is also the market maker for the company.

Post-IPO, company’s current paid-up equity capital of Rs. 6.58 cr. will stand enhanced to Rs. 8.95 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 94.89 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 159.20 cr. / Rs. 1.42 cr. (FY22), Rs. 195.19 cr. / Rs. 0.60 cr. (FY23), Rs. 231.11 cr. / Rs. 4.51 cr. (FY24). The company posted inconsistency in its top and bottom lines for the reported periods, and surge in bottom line in pre-IPO year not only raises eyebrows, but also concern over its sustainability.

If we attribute FY24 earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 21.07. Thus the issue appears aggressively priced.

For the last three fiscals, it has reported an average EPS of Rs. 4.10, and an average RoNW of 46.07%. The issue is priced at a P/BV of 7.95 based on its NAV of Rs. 13.34 as of March 31, 2024, and at a P/BV of 3.06 based on its post-IPO NAV of Rs. 34.62 per share (at the upper cap).

For the reported periods, the company has posted PAT margins of 0.90% (FY22), 0.31% (FY23), 1.97% (FY24), and RoE margins of 74.33%, 23.80%, 51.50% respectively for the referred periods.

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 no listed peers to compare with.

MERCHANT BANKER’S TRACK RECORD:
This is the 32nd mandate from Shreni Shares in the last three fiscals (including the ongoing one), out of the last 10 listings, 1 opened at par and the rest all listed with premiums ranging from 4.88% to 141.94% on the date of listing.