What you must know about the Magson Retail and Distribution IPO

Magson Retail and Distribution Ltd, is an SME IPO on the NSE which is opening for subscription on 23rd June 2023. The company, Magson Retail and Distribution Ltd, was incorporated in the year 2018 and  it is engaged in the business of the retail and the distribution business of gourmet, frozen foods, and specialty foods. Some of the products that the company distributes through its channels include cheese and dairy products, exotic vegetables and fruits, ambient products, and luxury chocolates. It caters to a very niche audience that is quite fastidious about its needs but not too price conscious.

Back in 2009, the idea of Magson to serve the customers with premium quality gourmet, frozen & global food products came to life with the launch of the first Magson store by Rajesh Francis and Manish Pancholi under the guidance of Raaj Maganlal. Since its inception in 2009, the brand has noticeably evolved as a very unique and one-of-a-kind specialty store. It caters to the wide-ranging needs of the customer and has emerged as a preferred choice for Frozen & Gourmet Foods by most of the customers of the city of Ahmedabad. It has over 1.50 lakh customers transaction on a regular basis.

Key terms of the SME IPO of Magson Retail and Distribution Ltd

Here are some of the highlights of the Magson Retail and Distribution IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 23rd June 2023 and closes for subscription on 27th June 2023; both days inclusive.
   
• The company has a face value of ₹10 per share and the issue price for the fresh issue portion has a fixed price of ₹65 per share.
   
• The company will issue a total of 21.14 lakh shares at the price of ₹65 per share aggregating to a total fund raising of ₹13.74 crore.
   
• There is no offer for sale portion so the overall issue size comprises entirely of the fresh issue and entails the issue of 21.14 lakh shares for Rs13.74 crore of fund raising.
   
• The company has allocated not less than 50% of the issue size for the retail investor while the balance up to a maximum of 50% is allocated to HNI / NII investors.
   
• The minimum lot size for the IPO investment will be 2,000 shares. Thus, retail investors can invest a minimum of ₹130,000 (2,000 x ₹65 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 ₹260,000. There is no upper limit on what the HNI / NII investors can apply for.
   
• Like every SME IPO, this issue also has a marketing making portion with a market maker portion allocation of 106,000 shares. Sunflower Broking Ltd will act as the market maker to the issue providing two-way quotes to ensure liquidity on the counter.
   
• The company will use the net fresh receipt of funds (net of issue expenses) for setting up new stores and facilities in the franchisee mode, for meeting working capital requirements and also for general corporate needs.
   
• The company has been promoted by Rajesh Emmanuel Francis and Manish Shiv Narayan Pancholi and the promoter stake in the company stands currently at 95.89%. Post the IPO, being a fresh issue of shares, the promoter stake will be get diluted to 70.06%.
   
• While ISK Advisors Private Limited (formerly National Capital Management Private Limited) will also be the lead manager to the issue, Bigshare Services Private Limited will be the registrar to the issue.

Key dates to be aware of in the Magson Retail and Distribution Ltd IPO (SME)

Magson Retail and Distribution IPO opens on Friday, June 23rd, 2023 and closes on Tuesday June 27th, 2023. The Magson Retail and Distribution IPO bid date is from June 23rd, 2023 10.00 AM to June 27th, 2023 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is the 27th of June 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 Magson Retail and Distribution Ltd

The table below captures the key financials of Magson Retail and Distribution Ltd for the last 3 completed financial years.

Data Source: Company DRHP filed with SEBI

The company has sustained about 4% net margins which is the norm for the retailing segment. However, the return on net worth at the average range of 30% to 40% is rather encouraging and would be able to justify higher valuations. Also, considering the premiumization in the product, the company would be able to sustain higher valuations. The positive feature is that the company plans to use the fresh funds for expansion.

The company has a weighted average EPS for the latest 3 years of Rs4.31, which gives the stock a discount at current levels of 15 times earnings. That is something that can be justified with the current RONW and net profit margin figures for the stock. It is also lower than the worst case scenario in the industry and hence the risk is limited. Investors can take a slightly medium term view on the stock, but it is a high risk bet on the retail market.