IPO Size: Rs. 170 cr 

• Fresh Issue of Rs. 122 cr for (i) debt repayment Rs. 52 cr (ii) working capital Rs. 24 cr
• Offer for Sale (OFS) of Rs. 47 cr by promoter (88% holding to drop to 65% post IPO)

Price band: Rs. 78-83 per share

M cap: Rs. 677 cr, implying 25% dilution

IPO Date: Thu 5^th Sep to Mon 9^th Sep 2024, Listing Thu 12^th Sep 2024

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

Packaging Material Company

Shree Tirupati Balajee Agro Trading manufactures Flexible Intermediate Bulk Containers (FIBCs), woven fabric and narrow fabric, woven sacks, tapes used in industrial packaging, with FIBC accounting for over half of Rs. 540 cr revenue. Business has got nothing to do with agriculture or trading. Exports accounted for half the revenue in FY24, but it dropped from Rs. 305 cr YoY. This was compensated by domestic growth, up from Rs. 170 cr in FY23 to Rs. 276 cr in FY24.

Growth remains Monitorable

Company has 5 manufacturing facilities in Madhya Pradesh, with an aggregate installed capacity of 52,152 MTPA. Capacity utilisation increased to 85% in FY24, from 72% in FY21. No capex is planned from fresh issue proceeds, although capital work in progress stands at Rs. 16 cr as of 31.3.24, on net fixed assets of Rs. 72 cr.

Mid-Single Digit Margin

Between FY21-24, revenue grew at 16% CAGR, which was completely volume-led, as quantity sold rose at 15% CAGR during this period. Company is a price-taker for end-product, prices for which remain volatile in a highly competitive and unorganised market, while raw material prices are all crude-linked.

Net profit of Rs. 36 cr was reported for FY24. This includes other income of Rs. 13 cr comprises Rs. 8 cr one-offs on sale of fixed assets and forex gain. Excluding these, net profit comes to Rs. 30 cr, implying 5.6% net margin and an EPS of around Rs. 4.8.

Abnormally High Inventory 

Company’s working capital management is poor, with nearly 6 months inventory outstanding, as against 2.5-3 months for peers Emmbi, Commercial Syn, Gujarat Craft among others. As a result, the debt-to-equity ratio is high at 1.4:1, comprising working capital loans from banks. Post IPO, debt-equity ratio will stand at 0.6:1. RoE of 21% in FY24 will also contract to around 17% post IPO.

Expensive Valuation

On an estimated FY25E PAT of about Rs. 40 cr, PE works out to 15x on current year basis, which is seen expensive, when compared with micro-cap peer Gujarat Craft.

In Sep 2023, company had raised Rs. 22 cr from individual investors at Rs. 42 per share. In a year’s time, the asking price has doubled, reflecting greed.

Post listing, Shree Tirupati Balajee Agro will be a micro-cap stock, possibly subject to additional surveillance mechanism of the stock exchanges.

Play beyond Fundamentals?

Company’s 52.4% subsidiary Shree Tirupati Balajee FIBC is listed on NSE Emerge, with a m cap of Rs. 775 cr, implying a PE multiple of 50+x. Share price of this subsidiary has risen by 7 times in the past 14 months, when profit rose by 55% YoY. This spells caution for prospective IPO investors and one must not benchmark IPO company’s valuation on basis of this subsidiary’s m cap, which appears artificially inflated.