What you should know about Greenchef Appliances IPO?

Greenchef Appliances Ltd, is an SME IPO on the NSE which is opening for subscription on 23rd June 2023. The company was incorporated in the year 2010 and is engaged in the manufacture of kitchen appliances under the brand name of Greenchef. Its range of products include gas stoves, pressure cookers, mixer grinders, wet grinders, rice cookers, induction cooktop, and a whole range of non-stock cookware including pans, pots, and kettles.

Greenchef Appliances Ltd sells its products through offline outlets and also online through popular internet platforms like Flipkart, JioMart, Big Basket and Amazon. Apart from selling products, the company also provides its customers with after-sales services including installation, repairs, maintenance, annual contracts etc. It sells its products offline through a network of 107 authorized dealers located in 15 different states. The company has 3 manufacturing facilities in Karnataka and one in Himachal Pradesh.  

Key terms of the SME IPO of Greenchef Appliances Ltd

Here are some of the highlights of the Greenchef Appliances 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 book built issue has been fixed in the price range of ₹82 to ₹87.
   
• The issue will be entirely be a fresh issue. As part of the fresh issue, the company will issue a total of 61,63,200 lakh shares which at the upper end of the price band at ₹87 per share aggregating to a total fund raising of ₹53.62 crore.
   
• There is no QIB portion in the IPO and so the total size of the IPO will also comprise entirely of the fresh issue component of 61.632 lakh shares aggregating to ₹53.62 crore. QIBs are not EPS dilutive as they mere entail a transfer of ownership.
   
• The minimum lot size for the IPO investment will be 1,600 shares. Thus, retail investors can invest a minimum of ₹139,200 (1,600 x ₹87 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 3,200 shares and having a minimum lot value of ₹278,400. There is no upper limit on what the HNI / NII investors can apply for. There are not limits applicable for QIBs.
   
• Like every SME IPO, this issue also has a marketing making portion with a market maker portion allocation of 312,000 shares. Hem Finlease will act as the market maker to the issue providing two-way quotes to ensure liquidity on the counter.
   
• The company has been promoted by Sukhlal Jain, Praveen Kumar Jain, Vikas Jain and Hitesh Jain. The promoter stake in the company stands currently at 100.00%. Post the IPO, being a fresh issue of shares, the promoter stake will be get diluted to 73.52%.
   
• While Hem Finlease Ltd will also be the lead manager to the issue, Link Intime India Private Limited will be the registrar to the issue.

The company has allocated 50% of the issue size for the QIB investors, 35% to the retail investors and the balance 15% is allocated to HNI / NII investors. The table below captures the gist of the Greenchef Appliances Ltd IPO reservation model.

Key dates to be aware of in the Greenchef Appliances Ltd IPO (SME)

The SME IPO of Greenchef Appliances Ltd IPO opens on Friday, June 23rd, 2023 and closes on Tuesday, June 27th, 2023. The Greenchef Appliances Ltd 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 Greenchef Appliances Ltd

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

Data Source: Company DRHP filed with SEBI

The net profit margins have been extremely low at less than 1%, which his extremely low even for a pure retail player. For a manufacturer, the margins are very low in the latest year. One area of concern is the total borrowings which is at over ₹67 crore and that is tough to justify with the low net profit levels. The average return on net worth (RONW) will find it tough to justify valuations.

In terms of valuation, the upper price band of ₹87 discounts the weighted average EPS of the last 3 years by nearly 100 times. This is the kind of valuations that even big established in the kitchenware space do not command, so the valuation does look quite imposing. Also, this is a market where there is a huge unorganized sector and the organized sector is already in the hands of large corporates. In that kind of business, maintaining margins would be tough which is evident in the numbers. Investors must note this is a high risk stock with a steep price. Also, short to medium term upsides on this IPO may be limited.