Shubham Polyspin IPO Review

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Shubham Polyspin IPO

7.1

Company Background

6.5/10

Price Band

7.0/10

Financial Health

7.5/10

Industry Situation

7.0/10

IPO Proceeds Usage

7.5/10

Pros

  • Prime Manufacturing Location
  • Good Production Scale
  • Regular Quality Inspections

Cons

  • Income Tax Notices Served
  • Dependence on Few Customers & Suppliers

Shubham Polyspin Limited Basic Details

 

Shubham Polyspin Limited Background

Shubham Polyspin Limited was incorporated on March 12, 2012, in the state of Gujarat. Shubham Polyspin is engaged in the manufacture of Polypropylene Multifilament Yarn of different types like Air-Intermingled yarn, Twisted Yarn & Shubhlon Bag closing yarn.

The products of this company are used to cater to different demands of customers in a wide range of fields like Geo-Textiles, Filter Cloth, PP Bags as Mouth & bottom closing thread, etc.

The manufacturing unit of Shubham Polyspin Limited is located at Ahmedabad in Gujarat which is equipped with advanced technology and has the abilities to meet the customised requirements of their clients.

The current production capacity of the company is 2400 MT. The company not only caters to domestic customers in the states of Rajasthan, Madhya Pradesh & Maharashtra but also export their products to foreign countries. The company is now focusing to expand themselves in countries like Belgium, Madagascar, Uganda, Turkey, Sri Lanka, etc.

The business is now coming up with an SME IPO worth ₹6 Crore. In this detailed Shubham Polyspin IPO review, we will see different aspects related to this IPO and you can decide whether you should be investing in this IPO or not.

Shubham Polyspin IPO Data Points

Shubham Polyspin IPO will open on September 28, 2018, and close for subscription on October 4, 2018.

The IPO size will be of 15 lakh Equity shares and the face value of each share will be ₹10. The fixed price has been set at ₹40 per share.

The offer price includes a premium of ₹30 and is 4 times the face value of the equity shares. The IPO size is expected to be up to ₹6 crores.

Out of the 15 lakh equity shares, 78000 equity shares, aggregating up to ₹31.2 lakhs will be reserved for market makers and the rest 14.22 lakh equity shares, aggregating up to ₹568.8 lakhs will be issued to the public.

Out of these 14.22 lakh shares, 7.11 lakh equity shares, aggregating up to ₹284.4 lakhs will be allocated to retail investors. The market lot size is of 3000 equity shares and the shares will be listed on the SME exchange of the Bombay Stock Exchange or BSE.

Pursuant to a resolution passed on July 25, 2018, the issue has been authorised by the Board of Directors and pursuant to a special resolution of the shareholders at the Annual General Meeting held on August 4, 2018, the offer has been approved by them.

Shubham Polyspin Financial Performance

Let’s have a quick look at the financials reported by the company in the last 5 years or so. Understanding the financial health of the company is definitely very important in knowing the overall business performance and the growth the company has seen in the past.

 

Total revenues of the company have been increasing over the last 5 years from 626.13 lakhs in the financial year ended March 31, 2014, to 2,827 lakhs in the financial year ended March 31, 2018.

Profit after tax has increased significantly from 21.58 lakhs in fiscal 2017 to 148.15 lakhs in fiscal 2018.

This sudden and huge increase in PAT raises concerns and it is yet to be seen if the company is able to sustain such high growth in PAT. The return on net worth of the company for the years ended March 31, 2018, March 31, 2017, and March 31, 2016, is 24.03%, 4.61% and 7.14% respectively.

Shubham Polyspin IPO Objectives

The main objectives of the Shubham Polyspin IPO are as follows:

  • For funding of modernizations of Plant and Machineries, Building and Electrification
  • For funding of the working capital requirements of the company
  • For meeting expenses related to the  general corporate operations
  • For expenses related to the development of new products
  • For meeting expenses related to the issue

Other than the above-mentioned objectives, the company will also benefit in terms of enhanced corporate image, brand name and increased visibility through Shubham Polyspin IPO.

Shubham Polyspin IPO Events

Shubham Polyspin Limited filed the Draft Red Herring Prospectus (DRHP) with the Securities and Exchange Board of India (SEBI) on August 27, 2018, for the Fixed Price IPO.

The offer will open on September 28, 2018, and close on October 4, 2018. The finalisation of basis of allotment is expected to happen by October 10, 2018, and the initiation of refunds is expected to start by October 11, 2018.

The transfer of shares to demat accounts is expected to start on October 12, 2018, and the expected listing date will be October 15, 2018.

Shubham Polyspin IPO Recommendation

Now, let us try to understand the different strengths and risks related to the business of the company.

One of the major strengths of the company is its location of the manufacturing unit at Ahmedabad in Gujarat which is well equipped with both infrastructure facilities as well as skilled professionals and labour at competitive prices.

The current production of Polypropylene (PP) Multifilament yarn has reached up to 250 MT / Per month. The company’s focus on upgrading the skills of their employees and the modernisation of plant and machinery of their manufacturing unit also act as strengths for the company.

Another major advantage for Shubham Polyspin is it highly experienced and knowledgeable management team which possesses a deep understanding of the industry in which the company is operating.

Good communication among various levels of management ensures covering several risks for the business of the company including competition.

Regular tests and inspections are conducted in order to maintain a good quality of their products which enhances customer satisfaction.

Now, let us come to the risks part of the business of the company.

One of the major risks for the company is that income tax notices have been issued against the company and group companies by the IT department and if any adverse decision is taken in this regard, it may affect the financial health of the company.

Some registrations licences and permits are required from the government in order to run the company’s normal operations smoothly. Any failures in obtaining them or renewing them regularly may have an adverse effect the on operations of the company.

Dependence on a few customers and suppliers is another risk factor for the company. In comparison to peers operating in the same industry, the company has recorded low net profit margins. If this continues the company’s future profitability overall financial health will be jeopardised.

Dependence on third-party transportation providers for obtaining raw materials and for delivering finished products to customers is another risk factor for the business of the company.

As of June 30, 2018, various facilities from lenders have been availed by the company which amount to ₹1326.58 lacs. This considerable indebtedness may pose risks for the company and can adversely affect the financial health of the company to a large extent.

Also, the company has taken several unsecured loans that can be called for repayment by lenders anytime. This is a serious concern for the financial health of the company. Any loss of or a shutdown of operations of the company’s manufacturing facility due to any reason has the potential to adversely affect the business of Shubham Polyspin.

Operations of the company can get affected by strikes or increased wage demands by the workforce of the company. Failure in maintaining quality standards may affect the future profitability of the company.

The insurance coverage of the company is not sufficient enough to protect it from potential losses.

The company has shown negative cash flows in the last few years and if continues to be like this in future, it may have a negative effect on the profitability of the business as cash balances are required for meeting working capital requirements, implementing expansion plans, paying dividends, etc.

Also, the sudden increase in PAT in fiscal 2018 is a matter of concern.

After analysing various factors about the company, it can be said that investors should remain cautious and go through the Draft Red Herring Prospectus for further details. If an investor wants to subscribe for Shubham Polyspin IPO, then, an investment for a long term can be considered (assuming a reasonable risk appetite is in place).

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Shubham Polyspin Limited Management Information

Currently, there are 6 Directors on the Board of Shubham Polyspin Limited. Mr Anil Devkishan Somani is the Managing Director of the Company.

He possesses an experience of more than 35 years in the family business of Shubham Polyspin Limited. He is responsible for taking care of secretarial, legal and human resource functions in the company.

Shubham Polyspin IPO Advisors Information

Beeline Broking Limited is acting as Book Running Lead Manager to the issue. Link Intime India Private Limited is acting as the Registrar for the Shubham Polyspin IPO.

 

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