What you must know about Rajgor Castor Derivatives IPO?

Rajgor Castor Derivatives Ltd is owned by the Rajgor family and is a renowned manufacturer and supplier of castor oil and derivatives. The company has the capacity to produce 450 Metric Tonnes of castor products per day. The company was incorporated in 2018 and it became a public limited company only in 2022. It is among the leading manufacturers, exporters and suppliers of castor oil and derivatives. The company has three broad product lines in its operations. The first is Castor meal (also called) castor residue, castor extract & de-oiled castor cake. The remaining material is processed to remove oil and create castor de-oiled cake. This castor de-oiled cake is rich in protein and nutrients. The nitrogen helps the plants in formation of chlorophyll for photosynthesis. The phosphorus in it is necessary for root development, while the potassium improves plant resistance to diseases.

The second product line of Rajgor Castor Derivatives Ltd is High Protein Castor Meal (HPCM), a by-product obtained during the extraction of castor oil from castor seeds. It is a protein-rich meal, widely used as a livestock feed supplement. Rajgor Castor Derivatives Ltd produces high-quality HPCM that is a source of protein, essential amino acids, and other nutrients that are vital for the growth and development of livestock and poultry. The third product line of Rajgor Castor Derivatives is refined castor oil extracted by crushing the steam-cooked castor seeds of the expeller. Castor oil is insoluble in water. Refined Castor Oil is used as an essential component as a lubricant in vitamin and mineral tablet coatings and as a raw material for the manufacture of value-added castor oil derivatives.

Key terms of the Rajgor Castor Derivatives IPO SME

Here are some of the highlights of the Rajgor Castor Derivatives IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 17th October 2023 and closes for subscription on 20th October 2023; both days inclusive.
   
• The company has a face value of ₹10 per share and it is a book building issue. The issue price for the fresh issue IPO has been fixed in the price band of ₹47 to ₹50 per share. Being a book built issue, the actual price discovery will happen post the IPO.
   
• The IPO of Rajgor Castor Derivatives Ltd has a fresh issue component and an offer for sale (OFS) 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, Rajgor Castor Derivatives Ltd will issue a total of 88,95,000 shares (88.95 lakhs), which at the upper IPO price band of ₹50 per share aggregates to a total fresh issue size of ₹44.48 crore.
   
• As part of the offer for sale (OFS) in the IPO, Rajgor Castor Derivatives Ltd will sell a total of 6,66,000 shares (6.66 lakhs), which at the upper IPO price band of ₹50 per share aggregates to a total fresh issue size of ₹3.33 crore. The entire 6.66 lakh shares in the OFS are by the promoter shareholders.
   
• As a result, the total issue size will comprise the issue of a total of 95,61,000 shares (95.61 lakhs), which at the upper IPO price band of ₹50 per share aggregates to a total issue size of ₹47.81 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker portion allocation of 5,01,000 shares. The market maker for the issue is Spread X Securities 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 Brijesh Kumar Rajgor, Vasant Kumar Rajgor, and Maheshkumar Rajgor. The promoter holding in the company currently stands at 100.00%. However, post the fresh issue of shares and the OFS, the promoter equity holding share will reduce to 60.02%.
   
• 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.       
   
• Beeline Capital Advisors Private Ltd will be the lead manager to the issue and Link Intime India Private Ltd will be the registrar to the issue. The market maker for the issue is Spread X Securities Ltd.

IPO allocation and minimum lot size for investment

The company has allocated 5.24% of the issue size for the market makers to the issue, Spread X Securities Ltd. The net offer (net of market maker allocation) will be divided between the retail investors, the HNI / NII investors and the QIB investors. The breakdown of the overall IPO of Rajgor Castor Derivatives Ltd in terms of the allocation to various categories are captured in the table below.

The minimum lot size for the IPO investment will be 3,000 shares. Thus, retail investors can invest a minimum of ₹150,000 (3,000 x ₹50 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 6,000 shares and having a minimum lot value of ₹300,000. 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 Rajgor Castor Derivatives IPO (SME)

The SME IPO of Rajgor Castor Derivatives IPO opens on Tuesday, October 17th, 2023 and closes on Friday, October 20th, 2023. The Rajgor Castor Derivatives IPO bid date is from October 17th, 2023 10.00 AM to October 20th, 2023 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is October 20th, 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 Rajgor Castor Derivatives Ltd

The table below captures the key financials of Rajgor Castor Derivatives Ltd for the last 3 completed financial years.

Data Source: Company DRHP filed with SEBI

Here are some of the key takeaways from the financials of the company for the last 3 years.

• The revenue growth looks substantial in the last 2 years, but the numbers are too erratic so it is hard to arrive at a sustainable rate of growth on a CAGR basis. We have to await more data points for a clearer view.
   
• The net margins in the last 2 years have ranged between 1% and 2%, which is fairly low and the profits in the latest year have hardly grown despite the sharp growth in sales. The ROE is still attractive at around 20%.
   
• Being a capital light business, the asset turnover ratio or the asset sweating ratio has been relatively high. However, the trend has been erratic so one needs to be cautious about taking this ratio at face value.

The company latest year EPS is around ₹30 per share, but that is more on the back of a sharp spike. It needs to be seen at what rate the company stabilizes its EPS post the dilution in the IPO. That would hold the key to an investment decision. For now, the stock is a high risk call and investors must take a call with the risk factor clearly in mind.