Arvee Laboratories (India) Limited

Incorporated in 2012, Arvee Laboratories (India) Limited is Ahmadabad, Gujarat based company engaged in trading in specialty chemicals by getting manufacturing done on job work basis. Company has plans to begin manufacturing of specialty chemicals in near future. Arvee Labs is mainly engaged in manufacturing of Polymer Modifiers, Contrast Media Intermediates and Drug Intermediates. Company caters to the demand of both domestic as well as international markets. Arvee Labs bought land, building and machineries from Skylink Chemicals Private Limited who was engaged in manufacturing of specialty chemicals. Currently, Company is negotiating with IDBI Bank Limited to take over the business of Skylead Chemicals Limited which has been declared as sick by BIFR. On financial performance front, company has posted turnover/net profits of Rs. 3.56 cr. / Rs. 0.04 cr. (FY13), Rs. 11.84 cr. / Rs. 0.02 cr. (FY14), Rs. 13.05 cr. / Rs. - (1.65) cr.  (FY15), Rs. 26.92 cr. / Rs. 0.19 cr. (FY16) and Rs. 34.94 cr. / Rs. 1.55 cr. (FY17). Thus it has marked inconsistency in bottom lines for all these years. For first half of the current fiscal, it has earned net profit of Rs. 0.32 cr. on a turnover of Rs. 19.80 cr. sudden jump in bottom line for FY17 is surprising. For last three fiscals it has posted an average EPS of Rs. 1.15 and average RoNW of 1.46%. Issue is priced at a P/BV of 5.88 based on its NAV of Rs. 10.36 as on 31.03.17 and at a P/BV of 2.57 on the basis of its post issue NAV of Rs. 23.77. If we annualise latest earnings and attribute it on fully diluted post issue equity then asking price is at a P/E of around 52 plus. On the basis of FY17 earnings P/E comes to around 22. Thus issue is priced aggressively. P/Es of its listed peers are Transpek (21), Thirumalai (22) and Finotex (20). On merchant banker's front, this is the 29th mandate from its stable in last three years. Out of last 10 listings, 1 opened at discount, 1 at par and the rest with a premium ranging from 1% to 153% on the day of listing. 153% premium opening was marked by the only main board IPO from its stable i.e. Salasar Techno. As per financials, company's growth is not consistent in bottom line, RoNW is 1.46% for last three fiscals and issue looks aggressively priced as per latest earnings when we compare with peers. So, we give NEUTRAL rating to this SME IPO.

• 1 Mr. Shalin Sudhakarbhai Patel
• 2 Mr. Shalin Bharat Chokshi