What you must know about Aelea Commodities IPO: ₹10 face value, book building with ₹91-₹95 price band

About Aelea Commodities Ltd

Aelea Commodities Ltd was incorporated in the year 2018 and is engaged in the trading of agricultural products. The company is largely into the business of processing and trading in cashews, but over the years it has added more commodities to its trading portfolio including sugar, pulses, soybean, rice, and wheat flour. For processing of cashew, it imports raw cashew from mostly African nations like Benin, Tanzania, Burkina Faso, Senegal, and Ivory Coast. Apart from trading in sugar, Aelea Commodities Ltd also has expertise in trading in by-products from sugar mills, such as Bagasse and others. Its domestic market is largely based out of Rajasthan, Karnataka, Gujarat, and Maharashtra while it also has global commodities presence in Dubai and in Sri Lanka. The processing unit of Aelea Commodities Ltd is located at Surat the Southern city of Gujarat, and it is currently in the process of setting up a second processing unit to handle the growing volumes. The company employs nearly 48 personnel on its rolls across various functions.

Highlights of Aelea Commodities IPO

Here are the key highlights of the Aelea Commodities IPO on the SME segment of the Bombay Stock Exchange (BSE):

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

•    Aelea Commodities IPO has a face value of ₹10 per share and it is a book building issue. The price band for the book building issue is set in the range of ₹91 to ₹95 per share. The final price will be discovered in this price band only.

•    The IPO of Aelea Commodities Ltd has only a fresh issue component and no offer for sale (OFS) component in the public issue. While the fresh issue portion is EPS dilutive and equity dilutive, OFS is just a transfer of ownership and  hence it is neither EPS dilutive nor is it equity dilutive.

•    As part of the fresh issue portion of the IPO, Aelea Commodities Ltd will issue a total of 53,68,800 shares (53.69 lakh shares approximately), which at the upper band IPO price of ₹95 per share aggregates to fresh fund raising of ₹51.00 crore.

•    Since there is no offer for sale, the fresh issue of shares will also double up as the total issue size. As a result, the overall IPO size will also comprise of the issue of a total of 53,68,800 shares (53.69 lakh shares approximately) which at the upper band of the IPO price at ₹95 per share will aggregate to overall IPO size of ₹51.00 crore.

•    Like every SME IPO, this issue also has a market making portion with a market maker inventory allocation of 2,68,800 shares. SS Corporate Securities Ltd will be the market maker to the issue. The market maker provides two-way quotes to ensure liquidity on the counter and low basis costs, post listing.

•    The company has been promoted by Hozefa S Jawadwala, Satyanarayan Patro, Ashok Patel, Firoz Gulamhusein Hathiyari, Rashida Hozefa Jawadwala, Sonali Malla, Sumita A Patel, and Farida Firoz Hathiyari. The promoter holding in the company currently stands at 86.45%. However, post the fresh issue of shares in the IPO, the promoter equity holding share will get diluted to 63.66%.

•    The fresh issue funds will be used by the company towards setting up a new processing plant, purchase of plant & machinery for existing and new units. Part of the funds will also be used for general corporate purposes. 

•    Ekadrisht Capital Private Ltd will be the lead manager to the issue, and Maashitla Securities Private Ltd will be the registrar to the issue. The market maker for the issue is SS Corporate Securities Ltd. The IPO of Aelea Commodities Ltd will be listed on the SME IPO segment of the BSE.

Aelea Commodities IPO – Key Dates

The BSE SME IPO of Aelea Commodities IPO opens on Friday, 12th July 2024 and closes on Tuesday, 16th July 2024. The Aelea Commodities 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 5 PM on the issue closing day; which is 16th July 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 July 19th 2024, will be visible to investors under the ISIN Code – (INE0T3401029). 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

Aelea Commodities IPO has already announced the market maker allocation at 2,68,800 shares as inventory for market making. SS Corporate Securities Ltd will be the market maker for the IPO. The breakdown of the overall IPO of Aelea Commodities Ltd in terms of allocation to various categories are captured in the table below.

The minimum lot size for the IPO investment will be 1,200 shares. Thus, retail investors can invest a minimum of ₹1,14,000 (1,200 x ₹95 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 2,400 shares and having a minimum lot value of ₹2,28,000. 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 is no maximum size limit for HNI applicants in an SME IPO. Let us now turn to the financial highlights of the IPO of Aelea Commodities Ltd. The company has reported numbers up to the close of fiscal year FY24 (Year ended March 2024). It has also reported for the two additional months to May 2024.

Financial Highlights: Aelea Commodities Ltd

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

Data Source: Company DRHP filed with SEBI

The sales growth in the last 3 years has been steady and growing almost at an even pace. The FY24 sales are nearly 38.5% higher than the FY22 sales. However, the company reported a sharp fall in net profits in the previous year FY23 on account of a sharp downward valuation in inventory valuations. As a result, we will only consider the latest year profits for our analysis as weighted averages could skew the output. Its latest year net margins are sedate at 8.59% while the ROE and the ROA are impressive at 26.61% and 11.47% respectively.

The company has latest year EPS of ₹8.15 and we have not included the weighted  average EPS, since the growth has been quite volatile in the last 3 years. The latest year earnings are being discounted by the IPO price of ₹95 per share at 11-12 times P/E ratio, which is fairly reasonable if you consider the steady growth and the profitability margins. Let us also look at how the picture changes if we extrapolate the FY25 numbers. The EPS for the first 2 months of FY25 stands at ₹1.87 per share and if that is annualized, it comes to ₹11.22 per share. This extrapolated FY25 price discounts the IPO price of ₹95 at a more sober P/E ratio range of 8-9X. However, we would not give too much credence as it is just 2 months data.

The company also comes to the table with some qualitative advantages. Its loyal client base with established relationships is an advantage. Also, the company has gradually built on its systems and processes, which is a big edge for a commodity driven trading company. The only area of uncertainty is the inventory valuations as we have seen in the last couple of years. Investors with a risk appetite can look to participate in the IPO, but they may have a longer wait as valuations will depend on quarterly earnings traction and also on the commodity price cycles. The pricing at the current juncture looks to be reasonable, especially if you look at the FY24 numbers and the projected FY25 numbers.