What you must know about Sati Poly Plast IPO: Price Band ₹123 to ₹130 per Share

About Sati Poly Plast Ltd

Sati Poly Plast Ltd was incorporated in the year 1999 to engage in the manufacture and marketing of multifunctional flexible packaging materials. The company caters to the packaging requirements of a slew of different industries. Sati Poly Plast Ltd has 2 manufacture plants. Both the plants are located at Noida and have a capacity of 540 tonnes per month (TPM). The installed capacity was recently doubled to the current levels. The packaging material manufactured by Sati Poly Plast Ltd has a customer base across a number of major states in India including Assam, Bihar, Chhattisgarh, Dadra and Nagar Haveli, Daman and Diu, Delhi, Gujarat, Haryana, Himachal Pradesh, Jharkhand, Madhya Pradesh, Maharashtra, Odisha, Punjab, Rajasthan and some more. Some of the major institutional clients of Sati Poly Plast Ltd include names like Pidilite (Fevicol Brand), Adani Wilmar (Fortune Brand) and JVL. Currently, Sati Poly Plast Ltd employs over 135 persons in its rolls across various functions.

Highlights of the Sati Poly Plast IPO

Here are the key details of the Sati Poly Plast IPO on the SME segment of the National Stock Exchange (NSE):

•    The issue opens for subscription on 12th July 2024 and closes for subscription on 16th July 2024; both days inclusive.

•    The stock of the company has a face value of ₹10 per share and it is a book built issue. The book building price band for the IPO has been set in the range of ₹123 to ₹130 per share. The final price discovery will happen in the above price band only.

•    The IPO of Sati Poly Plast Ltd has only a fresh issue component and no offer for sale (OFS) portion. While the fresh issue portion is EPS dilutive and equity dilutive, the OFS is just a transfer of ownership and  hence is not EPS or equity dilutive.

•    As part of the fresh issue portion of the IPO, Sati Poly Plast Ltd will issue a total of 13,35,000 shares (13.35 lakh shares), which at the upper band IPO price of ₹130 per share aggregates to fresh fund raising of ₹17.36 crore.

•    Since there is no offer for sale, the fresh issue will also double up as the overall size of the IPO. Therefore, the overall IPO size will also comprise of the issue of 13,35,000 shares (13.35 lakh shares) which at the upper band IPO price of ₹130 per share aggregates to overall IPO size of ₹17.36 crore.

•    Like every SME IPO, this issue also has a market making portion. The company has set aside a total of 70,000 shares as quota for market inventory. Spread X Securities Private Ltd has already been appointed as the market makers to the issue. The market maker provides two-way quotes to ensure liquidity on the counter and low basis costs.

•    The company has been promoted by Balmukund Jhunjhunwala, Anita Jhunjhunwala, Aditya Jhunjhunwala, Keshav Jhunjhunwala and M/S Balmukund Jhunjhunwala HUF. The promoter holding in the company currently stands at 86.30%. However, post the fresh issue of shares, promoter equity holding share will get diluted to 63.00%.

•    The fresh issue funds will be used by the company for its short term and long term working capital requirements in the business. A small part of the IPO proceeds has also be set aside for working capital needs. 

•    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 Private Ltd.
 

Sati Poly Plast IPO – Key Dates

Sati Poly Plast IPO opens on Friday, 12th July 2024 and closes on Tuesday, 16th July 2024. The Sati Poly Plast Ltd IPO bid date is from 12th July 2024 at 10.00 AM to 16th July 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 7.00 PM on the issue closing day; which is 16th July 2024.

Data Source: Company RHP

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. The credit of shares to the demat account on July 19th 2024, will be visible to investors under the ISIN Code – (INE0RPM01017). This allocation to the demat account is only applicable to the extent of the allocation of shares and if no allocations are made in the IPO, then no credit would be visible in the demat account.

IPO Allocation and Minimum Investment Lot Size

Sati Poly Plast IPO has announced a market maker allocation of 70,000 shares, which will be used as inventory for market making. Spread X Securities Private Ltd will be the market maker for the IPO. The net offer (net of market maker allocation) will be divided between the retail investors and the HNI / NII investors. The breakdown of the overall IPO of Sati Poly Plast Ltd in terms of allocation to various categories are captured below.

Data Source: Company RHP

The minimum lot size for the IPO investment will be 1,00 shares. Thus, retail investors can invest a minimum of ₹1,30,000 (1,000 x ₹130 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 2,000 shares and having a minimum lot value of ₹2,60,000. 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.

There are no upper limits for investments by HNIs / NIIs in the Sati Poly Plast IPO.

Financial Highlights: Sati Poly Plast Ltd

The table below captures the key financials of Sati Poly Plast Ltd for the last 3 completed financial years. The financials are updated as of the financial year ended March 2024.

Data Source: Company RHP filed with SEBI

Here are some of the key takeaways from the financials of the company for the last 3 years; i.e., from FY22 to FY24, being the latest year. 

•    The revenues over the last 3 years have been almost flat barring a minor spike in FY23. In fact, the revenues for FY24 is only marginally above the levels of FY22. As a result, even the profits have stagnated in the last 2 years with the PAT margins extremely insipid at 1.83%.

•    While net margins of the company have been tepid at 1.83%; the other return margins have shown traction in latest year. The return on equity (ROE) stands robust at 26.71% in FY24, while the return on assets (ROA) is modest at 5.83% in FY24. Both are lower compared to the previous year.

•    The asset turnover ratio or the sweating ratio has been healthy in the latest year at 3.18X and that only gets limited support from the levels of the ROA. It remains to be seen how the additional capital base is handled by sales growth.
The company has latest year EPS of ₹9.70, after adjusting for capital actions. The FY24 earnings are being discounted by the IPO price of ₹130 per share at 13-14 times P/E ratio. That may not look too expensive but the problem is justifying this kind of P/E ratio when the net margins are under 2% and ROA is just above 5%. Unless these ratios pick up traction in FY25, it would be tough to take a picking call on this IPO.

To be fair, Sati Poly Plast IPO some bring some intangible advantages to the table. It has cost leadership in its industry and also established links with the clients, in India and abroad. The investors can look at the IPO from a longer term perspective with a holding period of 1-2 years. However, investors must be prepared for the higher risk implicit in such IPO stocks; since the margins do not look too promising. For now, the company is just about in a position to justify its pricing, so it may not leave much on the table for a listing returns exit.