Resourceful Auto BSE SME IPO review

Review By Dilip Davda on August 17, 2024

•    The company is engaged in dealership of two wheelers and has Yamaha as a primary brand.
•    It has posted inconsistency in its financial performance for the reported periods.
•    Quantum jump in bottom line for 11M-FY24 raises eyebrows and concern over its sustainability. 
•    Based on FY24 annualized super earnings, the issue appears aggressively priced.
•    There is no harm in skipping this “High Risk/Low Return” pricey bet. 

ABOUT COMPANY:
Resourceful Automobile Ltd. (RAL) is actively involved in the dealership of two-wheeler bike of Yamaha, operating under the showroom name “Sawhney Automobile”. Specializing in the sales and servicing of motorcycles and scooters, with quality products and exceptional customer service, making it a trusted destination for motorcycle enthusiasts. Sawhney Automobile caters to a diverse range of customer preferences and needs by offering a comprehensive reputable manufacturers. As an authorized Yamaha dealership, it guarantees customers access to the latest models and authentic spare parts.

The company actively engages with the riding community through events, group rides, and sponsorships. This involvement fosters a sense of camaraderie among customers and enthusiasts. Recognizing the significance of the digital landscape, the dealership maintains a robust online presence, featuring a user-friendly website that provides information on products, promotions, and a platform for online inquiries. The company operates with integrity, adhering to all industry regulations and standards. The dealership places a high emphasis on transparency in pricing, ensuring customers have a clear understanding of their purchase. It is committed to environmental responsibility. This may include compliance with emission standards, promoting fuel-efficient models, and exploring eco-friendly alternatives, such as electric two-wheelers.

The extensive expertise of management team positions it to not only capitalize on existing opportunities but also navigate future prospects successfully. This wealth of experience is instrumental in addressing and mitigating various inherent risks in industry, particularly in the face of significant competition. The mission of the company is to offer a diverse range of high-quality motorcycles, exceptional service, and fostering a community that celebrates the spirit of freedom and exploration on two wheels. The company is committed to innovation, integrity, and customer satisfaction, and it strive to be the premier destination for every rider’s journey. The vision of the company is to set industry standards, cultivate a vibrant rider community, and leave a legacy of excellence that resonates with the spirit of the open road.

RAL’s dealership goes beyond sales, providing expert guidance to assist customers in selecting the right bike, arranging test rides, and offering financing options for enhanced accessibility. It takes pride in advanced service center, where skilled technicians handle routine maintenance, repairs, and ensure the availability of genuine spare parts to uphold the longevity and performance of the bikes it sells.

The company looks forward to continued growth and innovation in the dynamic two-wheeler industry. By staying at the forefront of market trends, maintaining strong customer relationships, and adapting to emerging technologies, Sawhney Automobile aims to solidify its position as a premier destination for all things related to two-wheeled mobility.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 1024800 equity shares of Rs. 10 each at a fixed price of Rs. 117 per share to mobilize Rs. 11.99 cr. The issue opens for subscription on August 22, 2024, and will close on August 26, 2024. The minimum application to be made is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 38.59% of the post-IPO paid-up capital of the company. The company is spending Rs. 0.65 cr. for this IPO process, and from the net proceeds, it will utilize Rs. 2.16 cr. for new showroom at Delhi/NCR, Rs. 4.56 cr. for repayment of debt, Rs. 3.36 cr. for working capital, and Rs. 1.26 cr. for general corporate purposes.

The company has issued entire initial equity shares at par value so far. It has also issued bonus shares in the ratio of 0.676 for 1 share in December 2023. The average cost of acquisition of shares by the promoters is Rs. NIL, and Rs. 5.96 per share.

The issue is solely lead managed by Swastika Investmart Ltd., and Cameo Corporate Services Ltd. is the registrar to the issue. Nikunj Stock Brokers Ltd. is the market maker for the company. The issue is underwritten to the tune of 15% by Swastika Investmart, and up to 85% by Giriraj Stock Broking.

Post-IPO, company’s current paid-up equity capital of Rs. 1.63 cr. will stand enhanced to Rs. 2.66 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 31.08 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total revenue/net profit of Rs. 11.27 cr. / Rs. 0.01 cr. (FY21), Rs. 12.50 cr. / Rs. 0.29 cr. (FY22), Rs. 19.38 cr. / Rs. 0.42 cr. (FY23). For 11M of FY24 ended on February 29, 2024, the company earned a net profit of Rs. 1.52 cr. on a total revenue of Rs. 17.24 cr. Thus the quantum jump in its bottom line for FY2-11M raised eyebrows and concern over its sustainability going forward.

If we attribute FY24 annualized super earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 18.72, and based on FY23 earnings, P/E stands at 75.0. Thus the IPO appears aggressively priced.

For the last three fiscals, it has reported an average EPS of Rs. 4.06, and an average RoNW of 25.55%. The issue is priced at a P/BV of 6.04 based on its NAV of Rs. 19.36 as of February 29, 2024, and at a P/BV of 2.16 based on its post-IPO NAV of Rs. 54.12 per share.

For the reported periods, the company has shown PAT margins of 0.01% (FY21), 2.33% (FY22), 2.20% (FY23), 266.84% (11M-FY24), and RoCE margins of 9.43%, 13.04%, 16.07%, 31.22% respectively for the referred periods. There appears to be some garble in its net profit margins for 11M-FY24.

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.

MERCHANT BANKER’S TRACK RECORD:
This is the 11th mandate from Swastika Invest in the last three fiscals (including the ongoing one), out of the last 9 listings, 1 opened at discount, and the rest listed with premiums ranging from 4.17% to 110.64% on the date of listing.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has no listed peers to compare with.