What you must know about Pramara Promotions IPO

Pramara Promotions Ltd is a promotional marketing agency, which was set up in the year 2006. It is engaged in the business of ideation, conceptualization, designing manufacturing and marketing of promotional products and gift items. It caters to clients across a cross section of industry groups including, FMCG (fast moving consumer goods), QSR (quick service restaurants), pharma, beverage companies, cosmetics, telecom, media, and a lot more. Pramara Promotions Ltd offers very niche services to these companies including cross promotions, loyalty and reward tabulation, corporate gifting, sweepstakes promotions etc. The company also arranges to manufacture the products under an OEM arrangement, wherein the company makes such products like water bottles, pens, and other gift items under an outsourcing agreement with another manufacturer. These are white labelled manufacture where the products are appropriately branded with the company's logo or design and used as strategic promotional merchandise.

Pramara Promotions Ltd has, till date, designed and manufactured over 5,000 products. The company has also expanded its product offerings and has recently launched proprietary brands like "Toyworks" and "Tribeyoung". As of July 2023, the Pramara Promotions Ltd has an overall staff strength of 83 employees. Some of its major strengths in the business include its existing track record, its strong franchise with corporate customers, ability to manufacture and deliver solutions in a cost effective manner and fairly stringent quality control and production standards. It will be using the IPO funds to predominantly fund its working capital gaps and for general corporate purposes. It is also into digital gifting ideas, which are growing in importance and appeal in the current market.

Key terms of the Pramara Promotions SME IPO

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

• The issue opens for subscription on 01st September 2023 and closes for subscription on 05th September 2023; both days inclusive. The IPO will be open for a total of 3 days, with 2 weekend holidays in between.
   
• The company has a face value of ₹10 per share and it is a fixed price IPO issue. The issue price for the IPO has been fixed at ₹63 per share. Since it is not a book built issue, there is no question of any price discovery in this IPO.
   
• The IPO of Pramara Promotions 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, Pramara Promotions Ltd will issue a total of 24,24,000 shares (24.24 lakhs), which at the fixed IPO price of the issue at ₹63 per share aggregates to a total fund raising of ₹15.27 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 the issue of 24.24 lakh shares, which at the fixed IPO price of ₹63 per share will aggregate to ₹15.27 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker portion allocation of 1,24,000 shares. The market maker for the issue is Pure Broking Ltd and they will provide two-way quotes to ensure liquidity on the counter post listing and low basis costs.
   
• The company has been promoted by Rohit Lamba and Sheetal Lamba. The promoter holding in the company currently stands at 95.41%. However, post the fresh issue of shares as part of the IPO, the promoter equity holding share will reduce to 69.81%.
   
• The fresh issue funds will be used by the company for meeting its working capital funding gaps and for general corporate expenses. Part of the monies raised will also go towards meeting the expenses of the issue.
   
• While Fedex Securities 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 Pure Broking Ltd.

Pramara Promotions IPO allocation and minimum lot size for investment

The company has allocated 5.12% of the issue size for the market makers to provide liquidity in the IPO. Of the net offer to public, 47.44% is reserved for the retail investors and the balance 47.44% for the non-retail investors, which predominantly includes the HNI / NII investors and to a lesser extent the QIB investors too. 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 2,000 shares. Thus, retail investors can invest a minimum of ₹126,000 (2,000 x ₹63 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 4,000 shares and having a minimum lot value of ₹252,000. 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 Pramara Promotions IPO (SME)

Pramara Promotions IPO opens on Friday, September 01st, 2023 and closes on Tuesday, September 05th, 2023. The Pramara Promotions Ltd IPO bid date is from September 01st, 2023 10.00 AM to September 05th, 2023 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is September 05th, 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 Pramara Promotions Ltd

The table below captures the key financials of Pramara Promotions Ltd for the last 3 completed financial years.

Data Source: Company DRHP filed with SEBI

The company has reported net margins of 4.36% only in the current year, whereas in previous years the net margins were averaging in the range of 1% to 2%. This does raise some concern about the ability of the company to sustain valuations with the current business model. By default, this is a service oriented business and as such the margins should have bene higher and the asset sweating a lot better. However, the asset sweating is less than one, which is tough to fathom in a service oriented industry. Also, the ROE is above 10% in the last 2 years and one has to wait for the ROE to stabilize. The company has a debt equity ratio of 2:1, which is once again surprising for a largely service oriented industry. Also, if one looks at the sales trend of the company, it has been relatively erratic over the last 3 years.

The traditional P/E model becomes difficult to apply in the case of Pramara promotions, as it is tough to get benchmarks. The P/e ratio is sub-20, but what would be of concern here is the high level of debt in the books of the company as well as the volatile margin ratios. The big question is, how will the company scale up its business in a cost effective way, and there does not appear to be a simple answer to that question. This is a competitive business and in an industry where things going increasingly digital, the traditional gifting ideas are changing rapidly. It remains to be seen how the company adapts. However, the investment in this IPO would be a high risk investment with the odds not exactly in favour of the investors. Any investment in this IPO must be done with caution and with cognizance of the risks.