Solve Plastic NSE SME IPO review (Avoid)

Review By Dilip Davda on August 9, 2024

•    The company is operating in uPVC and Rigid pvc pipes, which is highly competitive and fragmented segment.
•    It posted inconsistency in its top line for the reported periods. 
•    Based on FY24 earnings, the issue appears aggressively priced.
•    There is no harm in skipping this pricey and “High Risk/Low Return” bet.

ABOUT COMPANY:
Solve Plastic Products Ltd. (SPPL) is an ISO 9001:2015 and Bureau of Indian Standards IS 4985:2021, 3419:1988, 9537: Part 3:1983 certified company engaged in manufacturing of comprehensive range of uPVC (Unplasticized Polyvinyl Chloride) Pipes and Rigid PVC Electrical Conduits. The Company is committed towards constant innovations in drinking water piping solutions and electrical conduit fittings technologies to meet the constantly increasing demands.

To meet the rising demand for rigid PVC electrical conduits in the regional markets, the company is expanding its capacity from 2760 MT to 4860 MT per annum. The Company markets its products under the brand name of “BALCOPIPES”, through its network of Authorized Dealers/Distributors. As on the date of this Prospectus, it has 260 Authorized Dealers/Distributors present across 3 (three) states i.e. Kerala, Karnataka and Tamil Nadu. As of the date of this prospectus, it had 180 employees on its payroll.

The company has 3 (three) well-equipped manufacturing facility at Kerala and 1 (one) well-equipped manufacturing facility at Tamil Nadu. It has the latest technology and equipment that helps in the production of high-quality uPVC pipes and Electrical Conduits of different sizes. Its manufacturing facilities is fully automated. The company also has a well-trained team of engineers, technicians and operators that helps in the production and quality control of the products.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 1302000 equity shares of Rs. 10 each at a fixed price of Rs. 91per share to mobilize Rs. 11.85 cr. The issue opens for subscription on August 13, 2024, and will close on August 16, 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 29.81% of the post-IPO paid-up capital of the company. The company is spending Rs. 1.62 cr. for this IPO process, and from the net proceeds, it will utilize Rs. 5.53 cr. for capex on additional plant and machinery, Rs. 3.82 cr. working capital, and Rs. 0.88 cr. for general corporate purposes.

The issue is solely lead managed by Finshore Management Services Ltd., and Integrated Registry Management Services Pvt. Ltd. is the registrar to the issue. Black Fox Financial Pvt. Ltd. is the market maker for the company.

Post-IPO, company’s current paid-up equity capital of Rs. 3.07 cr. will stand enhanced to Rs. 4.37 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 39.75 cr.

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 20.00 – Rs. 332.00 between November 2012 and July 2023. The average cost of acquisition of shares by the promoters is Rs. 10.14, Rs. 10.70, Rs. 12.00, Rs. 12.50, Rs. 13.33, and Rs. 125.00 per share.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit/ – (loss) of Rs. 55.78cr. / Rs. – (0.41) cr. (FY22), Rs. 62.25 cr. / Rs. 1.20 cr. (FY23), Rs. 47.16 cr. / Rs. 1.43 cr. (FY24).

For the last three fiscals, it has reported an average EPS of Rs. 3.43, and an average RoNW of 27.67%. The issue is priced at a P/BV of 6.36 based on its NAV of Rs. 14.31 as of March 31, 2024, and at a P/BV of 2.45 based on its post-IPO NAV of Rs. 37.17 per share.

If we attribute FY24 super earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 27.91. Thus the issue relatively appears aggressively priced.

For the reported periods, the company has posted PAT margins of – (0.73) % (FY22), 1.93% (FY23), 3.02% (FY24), but missing RoCE margins data for the referred periods. PAT margins figures in KPI data differs on page 112 of offer document.

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 shown Captain Pipes, Rungta Irrigation, Dutron Poly, AIK Pipes as their listed peers. They are trading at a P/E of 55.7, 33.1, 42.5 and 29.9 (as of August 09, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORD:
This is the 26th mandate from Finshore Management in the last four fiscals (including the ongoing one), out of the last 10 listings, 2 opened at discount, 1 at par, and the rest listed with premiums ranging from 7.41% to 94.44% on the date of listing.