IPO Analysis: Sah Polymers Limited

IPO Rating: Avoid

About the issue: 

Sah Polymers Limitd, primarily engaged in manufacturing and selling Polypropylene (PP)/High-Density Polyethylene (HDPE) FIBC Bags among others, is coming out with its initial public offering (IPO) of equity shares of the face value of Rs 10 per equity share. The price band of the issue has been fixed at Rs 61 to Rs 65 per equity share. The issue size is Rs 66.30 crore at higher price band.  

The IPO opening date is December 30, 2022, and it will be closing on January 4, 2023. The IPO market lot size is 230 shares and in multiples thereof. A retail-individual investor can apply up to a maximum of 13 lots (2990 shares or Rs 194,350 at upper price band).

Objects of the Issue 

The company proposes to utilize the Net Proceeds towards funding of the following objects: 

1. Setting up of a new manufacturing facility to manufacture new variant of Flexible Intermediate Bulk Containers (FIBC). 

2. Repayment/ Prepayment of certain secured and unsecured borrowings in full or part availed by the Company and the Subsidiary Company. 

3. Funding the working capital requirements of the Company. 

4. General corporate purposes. 

Promoter holding  

The Pre issue shareholding is 100 per cent, Post the IPO the promoter stake will be 60.46 per cent.  

About the company: 

Sah Polymers Limited was incorporated in 1992, primarily manufactures and sells Polypropylene (PP)/High-Density Polyethylene (HDPE) FIBC Bags, Woven Sacks, HDPE/PP woven fabrics and woven polymer. 

The company provides customised bulk packaging solutions to business-to-business (" B2B") manufacturers in a variety of industries, including the agro pesticides industry, the basic drug industry, the cement industry, the chemical industry, the fertiliser industry, the food products industry, the textile industry, the ceramic industry and the steel industry. 

Sah Polymers Limited operates in two business segments: I domestic sales and (ii) exports. The company has a domestic presence in six states and one union territory, as well as an international presence in six regions, including Africa, the Middle East, Europe, the United States, Australia, and the Caribbean. The company has one manufacturing facility in Udaipur, Rajasthan, with an installed production capacity of 3960 mt p.a. 

Financial  

During FY20-22, company’s revenue and PAT clocked CAGR of 28 per cent and 284 per cent respectively, while EBITDA margin increased from 3.7 per cent in FY20 to 8.7 per cent in FY22. The company reported revenue of Rs 81.23 crore in FY22, up 46% YoY, while EBITDA increased to Rs 7 crore in FY22 from Rs3  crore in FY21. PAT for FY22 stood at Rs 4.38 crore as against Rs 1.27 crore in FY21. Its ROE during FY20, FY21 and FY22 stood at 1.6%, 6.3% and 16.4% respectively. The company has maintained a Net Debt/Equity of ~0.7x over FY20-22. 

Valuation and Outlook 

Based on FY22 earnings the company’s issue price is valued at PE of 38.3x. Even if we annualise first quarter profit numbers and take expanded equity after issue, PE comes to around 32x, which looks expensive. Even if we compare market cap to sales, IPO seems to be not keeping anything for the IPO subscribers.  Shares of company are available at market cap to sales of 2.01 times, again on higher side. Though, the company has a good product mix, strong customer base, good financials, the issue seems discounting all the positives and hence, our advice to investors is to skip the issue.