Raw Edge Industrial Solutions Ltd. (REISL) is specialized in organizing the inefficiencies of the industrial raw materials supplies. This specialization is based on research & development, exploration, mining, processing, logistics and IT enabling etc.
Business
REISL is playing a role of out sourcing partner for highly organized, technically advance, environment friendly and very cost effective players. The company is able to provide end-to-end solutions under one roof to the industries anywhere in India.
Having foreseen the potential use of Lime products and its demand, REISL initially started trading in Lime Fines, Limestone, Ferrous Sulphate, Quartzite, Dolomite and gradually ventured into Calcium Lime Crushing plant. It mastered in logistical play for procurement and supply of products on the basis of ERP (Enterprise Resource Planning).
Over the periods, the company expanded its Lime processing production capacities to 60000 MT/ annum besides continuing trading of other materials such as Lime Powder, Lime Stones, Dolomite, Quartzite, Calcined Magnesites, Quick Lime, Asetic Acid, Benzene, Butaone, Caustic, Ethyle Acelate, Ethylene Glycole, Hydrogen Paroxide, Menthol, Potasium Carbonate, Toulene.
At present, REISL is into the manufacturing and trading of calcium Lime products and trading into various minerals such as Hydrated Lime, Lime Stones Chips, Dolomite, Quartzite, Plaster of Paris. Though its customers are spreaded over 10 states, but major supply of its products are concentrated in the state of Gujarat and Rajasthan (contributing 91.37 % of total turnover). REISL has lined up tripling of its production capacities.
Offer
To part finance its plans for setting up of new manufacturing unit, working capital and general corpus fund needs, REISL is coming out with a maiden IPO of 2291200 equity shares of Rs. 10 each at a fixed price of Rs. 72 per share to mobilize Rs. 16.50 crore.
Issue opens for subscription on 05.07.18 and will close on 10.07.18. Minimum application is to be made for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. Issue constitutes 27.33% of the post issue paid up capital of the company.
Issue is solely lead managed by Guiness Corporate Advisors Pvt. Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue.
Having issued initial equity at par, it raised further equity in the price range of Rs. 45 to Rs. 60 per share. It has also issued bonus shares in the ratio of 7 for 1 in February 2018. Average cost of acquisition of shares by the promoters is Rs. 2.40, Rs. 3.43 and Rs. 4.65 per share.
Post issue, REISL’s current paid up equity capital of Rs. 6.70 cr. will stand enhanced to Rs. 8.38 cr.
Performance
On performance front, for last four fiscals, REISL has posted turnover/net profits of Rs. 33.50 cr. / Rs. 0.70 cr. (FY14), Rs. 38.27 cr. / Rs. 0.45 cr. (FY15), Rs. 41.34 cr. / Rs. 0.58 cr. (FY16) and Rs. 48.61 cr. / Rs. 0.62 cr. (FY17). For the first 10 months ended on 31.01.18 of FY18 it has earned net profit of Rs. 1.33 cr. on a turnover of Rs. 44.99 cr.
Thus for all these periods, while its top line has shown gradual improvements, its bottom line has seen inconsistency. As per management, its current performance is the result of its planed logistical management that has brought in additional margins.
For last three fiscals it has posted an average EPS of Rs. 7.21 and an average RoNW of 10.15% (on the basis of pre-bonus equity of Rs. 0.84 cr.)
Issue is priced at a P/BV of 0.80 on the basis of pre-bonus NAV of Rs. 901.27 (as on 31.01.18) and at a P/BV of 3.07 on the basis of post issue NAV of Rs. 23.46.
If we annualize latest earnings and attribute it on fully diluted equity post issue then asking price is at a P/E of around 37 plus. As per offer document, it has shown Sanginita Chemicals, India Gelatin and Meghmani Organics as its listed peers that are currently trading at a P/E of around 45, 27 and 9 (as on 03.07.18). Thus issue is priced aggressively.
On merchant banker’s front, this is 26th mandate from its stable in last three fiscals. Out of last 10 listings, 1 opened at discount and the rest opened at a premiums ranging from 2.63% to 20% on the day of listing. (Offer document has a mistake of showing Waa Solar issue price as Rs. 151 against Rs. 161 (page 189).
Conclusion / Investment Strategy
Despite gradual growth in top line, inconsistency in bottom line and aggressive pricing raises concern. Risk savvy cash surplus investors may consider investment at their own risk for long term.
