Manorama Industries Ltd. (MIL) is engaged in manufacturing, processing and supply of exotic and specialty fats.
BUSINESS
The company produces oils like sal butter, sal fat, sal oil, sal stearine, sal olein, mango butter, mango fat, mango oil, mango stearine, kokum butter, kokum oil, mowrah fat, and several valu-eadded tailor made products.
Currently, MIL is among the leading manufacturers of sal oils and stearine globally with an annual production of 3,000-4,000 tonnes. Globally, it is amongst the top 10 manufacturers of Stearine. [Source: CARE Industry Report].
At present, MIL is majorly catering to chocolate and cosmetic industry. Its product stearine which is made out of sal or mango seeds is one of the key ingredients in the manufacturing of cocoa butter equivalents (CBE), which has a demand in the chocolate industry.
Further, the company’s product olein is generally demanded in cosmetic industry. Its products also serve as a non-palm oil ingredient as there is movement against usage of palm oil in many western countries.
Further pursuant to the enactment of recent notification F. No. Stds /SCSS&H/ Notification (02)/FSSAI-2016 dated May 17th, 2017, from 1st Jan 2018, India has allowed 5% CBE produced from Indian exotic fats to be used in manufacturing of chocolates.
The relaxation is not applicable for CBE produced out of imported shea stearine. This has been a major positive development for MIL.
As the chocolate industry is growing rapidly in India, the demand for CBE should increase rapidly, which can be catered to by CBE produced from sal, mango, kokum, mahua, phulwara, & dhupa, which are Indian exotic fats.
Considering MIL has already been dealing in such ingredients and is proposing to set up an integrated facility for manufacturing of CBE at Raipur, the said notification should boost revenue from operations and financial results.
The company has also entered into an agreement with one of the leading chocolate manufacturers for supply of CBE for a period of two year from 2018. As on date of the RHP, MIL has an order book to supply CBE worth Rs. 76.80 cr. over a period of two years from April, 2018.
The Company is in the process of setting up an integrated manufacturing facility at Raipur with a capacity of around 11,250 tonnes p.a. of speciality fats and CBE. This shall enable it to carry out the entire manufacturing operations under one roof.
With its more than four decades journey in the said business, it has built relationships with large global chocolate/CBE manufacturers like Ferrero (Italy), Ferrero (India), Ferrero (Singapore), Mitsui (Japan), Unigra (Italy), Walter Rau (Germany), Adeka Corporation (Japan), IOI (Malaysia), Fuji Oil (Singapore), etc.
The Company has also entered into a supply agreement with The Body Shop International Ltd. (U.K.) for supply of mango butter. The Body Shop is one of the leading global cosmetic brands who have pioneered social audits with extremely stringent criteria for sourcing of their products & selection of suppliers.
Similarly, it has been supplying oleins & fats which have been used by other leading cosmetic companies like L’oreal, Hallstar (USA), Jedward International INC (USA), Stearinerie Dubois FILS, France, etc.
Domestically, it majorly supplies in Maharashtra, Gujarat, etc. and internationally, mainly supply products in countries like Japan, Italy, Malaysia, Indonesia, Singapore, Netherlands, Germany, Sweden, Denmark and UK.
ISSUE
To part finance its plans for establishing an integrated greenfield project for manufacturing of CBE/specialty fats and tailormade products at Birkoni, near Raipur, Chhattisgarh, and general corpus fund needs, MIL is coming out with a maiden IPO of 3404400 equity shares of Rs. 10 each via book building issue.
It has fixed a price band of Rs. 181-Rs. 188 per share. The company is mobilizing Rs. 61.62-64.00 cr. (based on lower and upper price bands). Issue opens for subscription on 21.09.18 and will close on 25.09.18.
Minimum application is to be made for 600 shares and in multiples thereon, thereafter. Post allotment, the shares will be listed on BSE SME.
Issue is solely lead managed by Pantomath Capital Advisors Pvt. Ltd. while Link Intime India Pvt. Ltd. is the registrar to the issue. Issue constitutes 30.59% of the post issue paid up capital of the company.
Having issued initial equity at par,it raised further equity in the price range of Rs. 50 to Rs. 198.71 per share between March 2008 and April 2018.
It has also issued bonus shares in the ratio of 1 for 2 in March 2011 and 5 for 2 in January 2018. Cipher – Plexus Capital Advisors Private Limited has invested in this company at Rs. 198.71 per share to buy 173779 shares (2.25% of existing equity capital) in April 2018.
Average cost of acquisition of shares by the promoters is Rs. 14.81 per share. Post issue MIL’s current paid up equity capital of Rs. 7.72 cr. will stand enhanced to Rs. 11.12 cr.
PERFORMANCE
On the performance front, for last four fiscals, MIL has posted turnover/net profits of Rs. 133.44 cr. / Rs. 0.94 cr. (FY15), Rs. 131.69 cr. / Rs. 1.08 cr. (FY16), Rs. 146.38 cr. / Rs. 1.38 cr. (FY17) and Rs. 221.89 cr. / Rs. 10.36 cr. (FY18).
Sudden boost in its top and bottom line is raising eyebrows. According to management, boost is due to more trading activities carried during the year, but major margins realization derived from manufacturing activities.
It is now giving major thrust on manufacturing activities only and has discontinued trading activities. For last three fiscals, it has posted an average EPS of Rs. 7.72 and an average RoNW of 25.52% (with super results of FY18).
Issue is priced at a P/BV of 5.74 based on its NAV of Rs. 32.75 as on 31.03.18. If we consider FY18 and attribute it on fully diluted equity post issue then asking price is at a P/E of around 20 plus and thus it appears fully priced.
As per offer documents, it has no listed peers to compare with. MIL enjoys virtual monopoly in the business. As per Bloomberg source – globally only three companies are in the similar business i.e. Fuji Oil, AAK Denmark and Loders Croklaan that are currently trading around 21, 30 and 23 P/E multiples in international markets.
On merchant banker’s front, this is 81st mandate from its stable in last four fiscals. Out of last 10 listings, 1 opened at par and the rest with a premium ranging from 0.5% to 8% on the day of listing.
CONCLUSION
As the issue is fully priced, considering its expansion plans and virtual monopoly status, investors may consider investment for long term. (Subscribe for long term).
