What you must know about CPS Shapers IPO

CPS Shapers Ltd was incorporated in 2012, to essentially engage in the business of manufacturing Shapewear for Men and Women. CPS Shapers Ltd manufactures and sells Shapewear for men and women through its brands “Dermawear” and the company currently sells the products via offline and online channels.  CPS Shapers Ltd has a very wide product portfolio, which includes saree shapewear, mini shaper, sports bra, Mini corsets, tummy reducers, Active Pants, Denim, Mask, and other shapewear. The company boasts of a pan-India presence and its distributor network is spread across 28 states and 8 Union territories in India. It also has a robust export market and reaches out to 5 countries; including Canada, Germany, Australia, UK, and the US. While the company has its manufacturing unit located at Meerut in Uttar Pradesh; its warehousing facilities are located at Palghar in Maharashtra, and Tirupur in the southern state of Tamil Nadu.

As of date, the company has over 50 products in its catalogue, more than 6,000 retail presence counters, over 10 online sales channels, established presence in omnichannel selling as well as a strong presence in 6 countries. The company was founded by Rajendra Kumar and, Abhishek Kamal Kumar; with the intent to create a forward-looking brand that combines innovative designs with functionality and comfort. The idea is to feel comfortable and confident in their body. The journey began when Dermawear introduced a range of stockings and shapewear, revolutionizing the way people perceive body shaping and support garments. Today, the product portfolio of CPR Shapers Ltd includes a wide array of meticulously crafted shapewear and athleisure clothing, catering to diverse body types and fashion preferences. The issue is being lead managed by Shreni Shares Private Ltd while Bigshare Services Private Ltd will be the registrars to the issue.

Key terms of the CPS Shapers IPO

Here are some of the highlights of the CPS Shapers IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 29th August 2023 and closes for subscription on 31st August 2023; both days inclusive.
   
• The company has a face value of ₹10 per share and it is a fixed price issue. The issue price for the IPO has been fixed at ₹185 per share. Being a fixed price IPO, there is no scope for any book building price discovery in this issue.
   
• The IPO of CPS Shapers Ltd has only a fresh issue component with no book built portion. It must be remembered that the fresh issue portion is EPS dilutive and equity dilutive, but OFS is just a transfer of ownership and  hence it is not EPS or equity dilutive.
   
• As part of the fresh portion of the IPO, CPS Shapers Ltd will issue a total of 6,00,000 shares (6 lakh shares), which at the fixed IPO price of ₹185 per share aggregates to a total fund raising of ₹11.10 crore.
   
• Since there is no offer for sale portion, the total size of the fresh issue will also be the total size of the IPO. Hence the total IPO size will comprise of 6 lakh shares, which at the fixed IPO price of ₹185 per share will aggregate to ₹11.10 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker portion allocation of 31,200 shares. The market maker for the issue is Shreni Shares Private Ltd and the market maker will provide two-way quotes to ensure liquidity on the counter post listing and low basis costs.
   
• The company has been promoted by Abhishek Kamal Kumar and Rajendra Kumar. The promoter holding in the company currently stands at 99.80%. However, post the fresh issue of shares and the OFS, the promoter equity holding share will reduce to 71.29%. Allowing public float of over 25% is an essential precondition of listing.
   
• The fresh issue funds will be used by the company for purchase of plant & machinery, purchase of commercial vehicles, capex for solar power systems, IT upgradation, repayment of loans and funding of working capital gaps.  
   
• While Shreni Shares Private Ltd will be the lead manager to the issue, Bigshare Services Private Ltd will be the registrar to the issue. The market maker for the issue is Shreni Shares Private Ltd once again.

IPO allocation and minimum lot size for investment

The company has allocated 10% of the issue size for the QIBs, 45% for the retail investors and the balance 45% for the HNI / NII investors or the non-retail investors in the IPO of CPS Shapers Ltd. The break up in terms of minimum and maximum allowed quota has been captured in the table below.

The minimum lot size for the IPO investment will be 600 shares. Thus, retail investors can invest a minimum of ₹111,000 (600 x ₹185 per share) in the IPO. That is also the maximum that the retail investors can invest in the IPO. HNI / NII investors can invest a minimum of 2 lots comprising of 1,200 shares and having a minimum lot value of ₹222,000. There is no upper limit on what the QIBs as well as what the HNI / NII investors can apply for. The table below captures the break-up of lot sizes for different categories.

Key dates to be aware of in the CPS Shapers IPO

The SME IPO of CPS Shapers Ltd IPO opens on Tuesday, August 29th, 2023 and closes on Thursday August 31st, 2023. The CPS Shapers Ltd IPO bid date is from August 29th, 2023 10.00 AM to August 31st, 2023 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is August 31st, 2023.

It must be noted that in ASBA applications, there is no refund concept. The total application amount is blocked under the ASBA (applications supported by blocked amounts) system. Once the allotment is finalized, only the amount is debited to the extent of the allotment made and the lien on the balance amount is automatically released in the bank account.

Financial highlights of CPS Shapers Ltd

The table below captures the key financials of CPS Shapers IPO for the last 3 completed financial years.

Data Source: Company DRHP filed with SEBI

The company has reported net margins of 6% to 6.5% in the recent two years, whereas it was under 3% in the years prior to that. That is a reasonable margin for the manufacturing business, but ROE would be more suggestive in such cases. The return on equity in this case is more than 100% but that can be rather misleading. Till the previous year, the company had a negative net worth due to the accumulated losses and it is only in the current year that the net worth has turned positive. Hence, due to the cumulative impact, the net worth is optically low, which presents an incorrect picture. Hence we have to wait for the net worth to stabilize at higher levels to get a clear picture of the ROE>

The traditional P/E model becomes difficult to apply in the case of CPR Shapers Ltd as the company has delivered a relatively better performance only in the latest year. Also, the company had negative net worth till the previous year. This is a very niche play with a very limited market and one cannot expect a massive scaling up in the segment. Also, this is an industry with few entry barriers and hence competition can emerge at short notice. The investment call would be based on the kind of risk that investors are willing to take; and in this case the risk appear to outweigh the rewards. Long term sustainable financial metrics are missing due to negative net worth till the previous year. It is a high risk call that investors will have to take in this IPO.