Sonam Clock Ltd. (SCL) is a clock manufacturing Company situated in Morbi, Gujarat. It offers a wide range of table and wall clocks at various price points across budget, mid-level and premium styles.
Business
As on February’18, SCL is offering clocks from a price range of Rs. 100 to Rs. 1800 which includes LED digital clocks, LCD clocks, light sensor clocks, pendulum clocks, musical clocks,rotating pendulum musical clocks, sweep clocks, office clocks, designer clocks, alarm clocks, table clocks and regular clocks.
It also offers customized corporate clocks in bulk quantities for corporate gifting purpose. Company’s products are sold mainly to clock dealers, retailers, corporates, gifts and novelties stores, through which it reaches to end consumers.
SCL’s products are sold under the brand name of Sonam, ampm and Lotus. It has at present installed production capacity of approximately 72 lakhs p.a. for clocks and 240 lakhs p.a. for clock movements. A Clock movement, also known as caliber, is an internal mechanical part of the clock, which drives hour, minute and second hands of clock in motion. SCL is also engaged in sale of clock parts which includes clock movements, clock cases etc.
Offer
To part finance its repayment of unsecured loans, working capital requirements and general corpus fund needs, SCL is coming out with a maiden IPO of 2808000 equty shares of Rs. 10 each at a fixed price of Rs.36 per share to mobilize Rs.10.11 crore. Issue opens for sub scription on 01.06.18 and will close on 06.06.18. Minimum application is to be made for 3000 shares and in multiples thereon, thereafter.
Post allotment, shares will be listed on NSE SME Emerge. Issue is solely lead managed by Hem Securities Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Issue constitutes 28.06% of the post issue paid up capital of the company.
Its entire equity is issued at par. It has also given bonus shares in the ratio of 2 for 1 in March 2016 and 1 for 3 in December 2017.
Average cost of acquisition of shares by the promoters is Rs. 2.43 and Rs. 2.50 per share. Post issue, its current paid up capital of Rs. 7.20 cr. will stand enhanced to Rs. 10.01 cr.
Performance
On performance front, for last four fiscals SCL has posted turnover/net profits of Rs. 33.55 cr. / Rs. 0.58 cr. (FY14), Rs. 34.06 cr. / Rs. 0.41 cr. (FY15), Rs. 36.82 cr. / Rs. 1.35 cr. (FY16) and Rs. 39.03 cr. / Rs. 0.81 cr. (FY17).
For first nine months ended on 31.12.17 of FY18 it has earned net profit of Rs. 2.26 cr. on a turnover of Rs. 38.62 cr. which appears inflated figures. Its top line was almost static for FY 14 and 15 and grew for FY16 and FY17 but bottom line was inconsistent.
First nine months figures are surprising one and raises concern on sustaining of it going forward as the sector is highly competitive and faces huge threat from unorganized players. For last three fiscals it has posted an average EPS of Rs. 1.28 and an average RoNW of 10.75%. Issue is priced at a P/BV of 2.23 on the basis of its NAV of Rs. 16.12 as on 31.12.17 and at a P/BV of 1.66 based on post issue NAV of Rs. 21.70.
If we annualize latest super earnings and attribute it on fully diluted equity post issue then asking price is at a P/E of around 12. As per offer documents it is showing Opal Luxury Time as its listed peer which is not traded since 27th March 2018 (LTP Rs. 107) and as per AR of 2016-17 it has seen erosion in top line and incurred heavy losses.
Its debt-equity ratio as on 31.12.17 is 2.15.
On merchant banker’s front, this is 30th mandate from its stable in last three fiscals and out of last 10 listings, 2 opened at discount to offer price, 8 with a premiums ranging from 2.67% to 20% on the day of listings
Investment Strategy
Although prima facie, issue pricing appears reasonable, concern over sustainability of its super profits of first nine months of FY18 and its listed peer reporting losses for FY17 and having no trades for over two months hints at caution. Considering these, cash surplus risk savvy investors may consider investment at their own risk.
