Started in 2013, Axita Cotton Limited is Mehsana - Gujarat based company engaged in the manufacturing and export of cotton bales and cotton seeds. The company also does ginning and pressing of Kapas on a job work basis. They are also engaged in the business of trading of Kapas, cotton bales and cotton seeds. Company has installed 48 Ginning and Pressing machines at production facility located at Kadi in Mehsana, which is having capacity of processing 87,600 MT/Per annum of seed cotton with current utilisation level of around 20% for FY18. Company is producing mainly two varieties of cotton bales namely Shankar-6 and MCU-5/MECH. The products are sold majorly in the state of Gujarat, Rajasthan, Maharashtra and Madhya Pradesh and exporting the products directly to few countries namely Pakistan, Bangladesh and Vietnam. As of October 15, 2018 Company has 23 employees at the manufacturing facility and registered office. As per financial performance, Axita Cotton has posted total income/net profits of Rs 17.36 cr. / Rs. 0.06 cr. (FY14), Rs 77.05 cr. / Rs. - (0.29) cr. (FY15), Rs 68.76 cr. / Rs. 0.12 cr. (FY16), Rs 91.52 cr. / Rs. 0.02 cr. (FY17) and Rs 123.92 cr. / Rs. 0.82 cr. (FY18). For upto Q1 of FY19, company has posted net profit 0.33 cr. with total income of 21.22 cr. So the company has shown very high jump in bottom line since FY17. Trade receivable are 10.64 Cr for FY18 which is around 8% of FY18 total earnings, which is very good. But promoters are taking home around 0.54 Cr as salary for FY18 which is very big amount as total net profit for the said period was 0.82 Cr. For last three fiscals, it has posted an average EPS of Rs 1.76 and an average RoNW of 14.27%. Issue is priced at a P/BV of 2.25 on the basis of post issue NAV of Rs. 26.65. If we consider latest earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 30 and as per FY18 earnings P/E is around 48. So issue looks costly as per latest earnings. As per DRHP company has shown Pashupati Cotspin Limited and Santaram Spinners Limited as listed peer and this stocks is currently trading at P/E of NA and 28 respectively. The peers are not strictly comparable as per business model. On BRLM's front, for Beeline Broking Limited this is the 3rd IPO in last three fiscals and from last 2 IPOs, all opened above issue price with 4% to 10% premium on the day of listing. As of now, all are trading above issue price. ( As on 24.12.18 ) Company has shown average results in last three fiscals, RoNW is 14.27% and issue looks aggressively priced with respect to current earnings. The sudden increase in bottom line after FY17 is very surprising. Performance of BRLM is good with very limited IPOs. So we give AVOID rating to this SME IPO.
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