Shree Ram Protiens Ltd

Started in 2008, Shree Ram Proteins Ltd is Rajkot Gujarat based company engaged in the business of de-linting and de-hulling of cotton seeds by mechanical process, oil extraction from cotton seeds and solvent extraction from cotton seeds oil cake and ground nuts. Company has installed capacity of 13,50,00,000 kg/pa and company is able to utilise around 40-50% of installed capacity in last three fiscals and planning to reach at level of 75% till 2019-20.  Cotton linter can be use in manufacturing of papers and as raw materials for manufacture of cellulose, this can be further process for medical and cosmetic purpose, linter can be broadly classified as a industrial raw materials. Cotton seeds oil cake, cotton seeds de oil cake and cotton hull are used as animal feeds. Cotton seed pre refine oil further process by refinery to convert in to edible oil. Company's manufacturing process is in three stages:1. De-linting and de-hulling of Cotton seeds, this process result in manufacture of shot fiber (linter), and De-linted cotton Seeds2. Cotton seeds oil extraction process result in pre refine cotton seeds oil and cotton seeds oil cake and3. Solvent extraction process, result in pre refine wash oil and de-oil cotton seeds cake. On financial performance front, SRPL has posted turnover/net profits of Rs. 116.13 cr. / Rs. - (0.63) cr. (FY13), Rs. 157.54 cr. / Rs. 1.29 cr. (FY14), Rs. 174.67 cr. / Rs. 1.36 cr. (FY15), Rs. 183.58 cr. / Rs. 0.51 cr. (FY16) and Rs. 157.80 cr. / Rs. 0.67 cr. Thus it has shown inconsistency in bottom lines for all these years and setback for FY17 in top line. Oil extraction segment is considered as low margin/high volume business. For first half of current fiscal, it has reported net profit of Rs. 0.39 cr. on a turnover of Rs. 48.72 cr. For last three fiscals it has posted an average EPS of Rs. 0.71 and an average RoNW of 5.01% on an equity base of Rs. 15 crore. If we annualise latest earnings and attribute it to fully diluted equity post issue, then asking price is at a P/E of around 75 to 86 based on lower and upper price bands. Asking price is at a P/BV of 2.04 to 2.34 based on lower and upper price bands (on its NAV of Rs.13.21 as on 30.09.17). As per offer documents, company has no listed peers to compare with. As per latest earnings, issue looks very aggressively priced. On merchant banker's front, this is the 56th mandate from its stable in last three fiscals. Out of last 10 listings, 1 opened around par and the rest with premiums ranging from 1% to 130% on the day of listing. (Listing at premium of 130% was for main board IPO of Astron Paper) As per financials, company's growth is not consistent, RoNW is 5.01% for last three fiscals and issue looks aggressively priced as per latest earnings. Company is in agriculture related sector and upcoming budget may have some good announcements, but its very competitive segment. So, we give AVOID rating to this SME IPO.

• 1 Mr. Lavjibhai Valjibhai Savaliya
• 2 Mr. Lalitkumar Chandhulal Vasoya