What you must know about Sylvan Plyboard IPO?

About Sylvan Plyboard (India) Ltd

Sylvan Plyboard (India) Ltd was incorporated in the year 2002 to manufacture a wide range of wood products. This includes plywood, block board, flush door, veneer and sawn timber across various grades and thicknesses. Sylvan Plyboard (India) Ltd operates its distribution across a network of 223 authorized dealers present across 13 states. Its wood products adhere to the quality standards of the Bureau of Indian Standards (BIS). Sylvan Plyboard (India) Ltd has a manufacturing facility located at Hooghly in West Bengal. The company has a roster of clients across a wide range of industries that use its products. The key user industries for the products manufactured by Sylvan Plyboard (India) Ltd include shipping, construction, interior decor, furniture, aviation, education, hospital, transport, and banking. In terms of client ownership structure, it supplies to private customers and also government projects where plywood is needed for commercial and residential infrastructure. Sylvan Plyboard (India) Ltd employs a total of 817 personnel on its rolls. 

Highlights of the Sylvan Plyboard IPO

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

•    The issue opens for subscription on 24th June 2024 and closes for subscription on 26th June 2024; both days inclusive.

•    The stock of the company has a face value of ₹10 per share and it is a fixed price issue. The fixed issue price for the IPO has been set at ₹55 per share. Being a fixed price IPO, the issue of price discovery does not arise.

•    The IPO of Sylvan Plyboard (India) 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, Sylvan Plyboard (India) Ltd will issue a total of 51,00,000 shares (51.00 lakh shares), which at the fixed IPO price of ₹55 per share aggregates to fresh fund raising of ₹28.05 crore.

•    Since there is no OFS, the fresh issue size will also double as the overall issue. Therefore, the overall IPO size will also comprise of the issue of 51,00,000 shares (51.00 lakh shares) which at the fixed IPO price of ₹550 per share aggregates to overall IPO size of ₹28.05 crore.

•    Like every SME IPO, this issue also has a market making portion. The company has set aside a total of 2,56,000 shares as quota for market inventory. Black Fox Financial 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 Anand Kumar Singh, Jai Prakash Singh, Shakuntala Singh, Kalyani Singh, and M/S Singh Suppliers Private Ltd. The promoter holding in the company currently stands at 99.80%. However, post the fresh issue of shares, promoter equity holding share will get diluted to 73.53%.

•    The fresh issue funds will be used by the company for capex towards purchase of additional plant and machinery, and working capital expenses. A small part of the IPO proceeds has also be set aside for general corporate purposes.

•    Finshore Management Services Ltd will be the lead manager to the issue, and Bigshare Services Private Ltd will be the registrar to the issue. The market maker for the issue is Black Fox Financial Private Ltd.

The IPO of Sylvan Plyboard (India) Ltd will be listed on the SME IPO segment of the NSE.

Sylvan Plyboard (India) IPO – Key Dates

The SME IPO of Sylvan Plyboard (India) Ltd IPO opens on Monday, 24th June 2024 and closes on Wednesday, 26th June 2024. The Sylvan Plyboard (India) Ltd IPO bid date is from 24th June 2024 at 10.00 AM to 26th June 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is 26th June 2024.

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 June 28th 2024, will be visible to investors under the ISIN Code – (INE01IH01015). 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

Sylvan Plyboard (India) Ltd has announced a market maker allocation of 2,56,000 shares, which will be used as inventory for market making. Black Fox Financial 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 Sylvan Plyboard (India) 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 2,000 shares. Thus, retail investors can invest a minimum of ₹1,10,000 (2,000 x ₹55 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 ₹2,20,000. 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 IPO of Sylvan Plyboard (India) Ltd.

Financial highlights: Sylvan Plyboard (India) Ltd

The table below captures the key financials of Sylvan Plyboard (India) Ltd for the last 3 completed financial years. 

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 FY21 to FY23, being the latest year. 

•    The revenues over the last 3 years have growth at a steady clip, with FY23 revenues nearly 82% above the revenues of FY21. However, net profits are too low as are the operating profits due to high input costs structure. Net margins are at just 1.78%.

•    While net margins of the company have been tepid at 1.78%, the margins have been flat in the last 2 years. The return on equity (ROE) stands at 4.00% in FY23, while the return on assets (ROA) is very low at 1.73% in FY23. Both are flat in last 2 years.

•    The asset turnover ratio or the sweating ratio has been modest in the latest year at 0.97X; which is where it was in the previous year too. However, here the company does not have the support of robust ROA, which is tepid at 1.73%.
Broadly, while sales have growth, costs are the issue and net margins and ROE have taken a hit on that count. Let us look at the valuation metrics.

How the valuation metrics shaped up for Sylvan Plyboards (India) Ltd

The company has latest year EPS of ₹2.53, after adjusting for the impact of the bonus shares issued in the ratio of 1:2. The FY23 earnings are being discounted by the IPO price of ₹55 per share at 21-22 times P/E ratio. That looks tad on the higher side, especially with the tepid net margins and very modest ROE and ROA. If we consider the 9-months EPS of ₹3.14 per share for FY24, the presumed P/E ratio on the annualized EPS of ₹4.19 per share at the IPO price of ₹55 is more reasonable at 13-14 times expected earnings for financial year FY24. However, the real issue with the company lies in the financials.

If one looks at the balance sheet of the company, nearly one-fourth of the liabilities is in the form of short term borrowings and one-fourth in the form of trade payables. That is inordinately high for a company of that size. As a result, the interest cost for the company is also very high. Apart from putting pressure on margins, it is also adding to the solvency risk of the business. For now, the pricing of the IPO looks reasonable if you consider the FY24 projected numbers. However, there are red flags in the balance sheet and income statement. Investors, even if they are looking at the IPO from a long term perspective, have to be totally conscious of the financial risks that the company is exposed to.