Mamata Machinery IPO: Balanced risk and reward for investors

Over the period from FY22 to FY24, the company achieved a Compound Annual Growth Rate (CAGR) of around 10 per cent in revenue and 29 per cent in net profit.

About the issue 
Mamata Machinery Ltd is preparing to launch its Initial Public Offering (IPO) for equity shares. Below are the issue details.

Objects of the Issue
Considering that the issue is exclusively an offer for sale, it is crucial to note that the company will not receive any offer proceeds. Instead, all offer proceeds will flow to the selling shareholders, distributed in accordance with the number of offered shares they sell as part of the offer.

Promoter holding
Mahendra Patel, Chandrakant Patel, Nayana Patel, Bhagvati Patel, Mamata Group Corporate Services LLP and Mamata Management Services LLP are the promoters of the company. The promoters currently hold a pre-issue shareholding stake of 92.45 per cent in the company.

Company profile
The company offers end-to-end manufacturing solutions for the packaging industry, primarily supplying packaging machinery to direct consumer brands in the FMCG, food, and beverage sectors. It also provides bag and pouch-making machines to converters and service providers who cater to the FMCG and consumer industries.

The company manufactures and exports plastic bag and pouch-making machines, packaging machinery, and extrusion equipment. Its products are marketed under the brand names “Vega” and “Win.” As of September 30, 2024, it has installed over 4,500 machines across 75 countries worldwide.

The company operates two international offices in Bradenton, Florida, USA, and Montgomery, Illinois, USA, and has sales agents in over five countries, covering regions such as Europe, South Africa, and Asia.

Its customer portfolio includes prominent names such as Balaji Wafers Pvt Ltd, Chitale Foods, Laxmi Snacks Pvt Ltd, Ganges Jute Pvt Ltd, Western India Cashew Company Pvt Ltd, Gits Food Products Pvt Ltd, Emirates National Factory for Plastic Ind LLC, Bansal Industries, Hershey India Pvt Ltd, and others.

Financials 

The company has demonstrated consistent growth in revenue, with a significant growth in net profit during FY24 compared to a marginal increase in FY23. Over the period from FY22 to FY24, the company achieved a Compound Annual Growth Rate (CAGR) of around 10 per cent in revenue and 29 per cent in net profit.

However, when annualized, Q1FY25 figures show a sharp decline compared to FY24. Seasonal patterns, weakened demand in key export markets, foreign exchange volatility, and overall sluggishness in the FMCG sector, driven by reduced sales and pricing pressures, may have impacted the company’s performance.

The management cautions that annualising Q1 numbers may lead to a misrepresentation of performance, as historical data indicates that only 30 per cent of annual performance is typically achieved in the first half, with the second half showing stronger results. The management remains confident in sustaining steady growth in annual performance going forward.

Valuation & Outlook

The issue is priced with a P/BV ratio of 4.50 times, calculated using its Net Asset Value (NAV) of Rs 53.98 as of June 30, 2024.

Considering the company's annualized FY25 earnings and fully diluted equity capital, the price-to-earnings (P/E) ratio reaches several hundred times. However, based on FY24 earnings, the P/E ratio stands at 17x, making the issue appear reasonably priced for FY24 performance.

The company delivered a robust return on equity (RoE) of 28 per cent and a return on capital employed (RoCE) of 31 per cent for FY24. Consequently, when compared to its listed peers using FY24 data, the company outperformed in both valuation and returns.

We recommend investors consider subscribing to the issue with a long-term investment outlook, but with a moderate allocation, given the prevailing uncertainties.