What you must know about Arvind and Company Shipping Agencies IPO?

Arvind and Company Shipping Agencies Ltd was incorporated in the year 1987 at Jamnagar, in the state of Gujarat. It is engaged in the business of carrying and forwarding agents. The company operates vessels like Cargo Barges, Flat Top Barges, Crane Mounted Barges, Hopper Barges, and tugs for Cargo. The company provides services that are related to Marine Vessels and Ancillary equipment and also supplies such equipment to multinational companies. It has also recently forayed into the hospitality business. Till date, the company has executed more than 850 such critical projects for its clients. Being in the business for over 36 years, the company brings pedigree and credibility to the business with experienced promoters as well as an experienced staff. Its cost structure is also quite low while its multiple locations are a major advantage in getting closer to the last mile customers.

Key terms of the SME IPO of Arvind and Company Shipping Agencies Ltd

Here are some of the highlights of the Arvind and Company Shipping Agencies IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 12th October 2023 and closes for subscription on 16th October 2023; both days inclusive.
   
• The company has a face value of ₹10 per share and it is a fixed price issue. The issue price for the fresh issue IPO has been fixed at ₹45 per share. Being a fixed price issue, there is no question of price discovery in this IPO.
   
• The IPO of Arvind and Company Shipping Agencies Ltd has only a fresh issue component with no book built portion. It must be remembered that the fresh issue portion is EPS dilutive and equity dilutive, but OFS is just a transfer of ownership and  hence it is not EPS or equity dilutive.
   
• As part of the fresh portion of the IPO, Arvind and Company Shipping Agencies Ltd will issue a total of 32,76,000 shares (32.76 lakhs), which at the fixed IPO price of ₹45 per share aggregates to a total fund raising of ₹14.74 crore.
   
• Since there is no offer for sale portion, the total size of the fresh issue will also be the total size of the IPO. Hence the total IPO size will also comprise of 32.76 lakh shares, which at the fixed IPO price of ₹45 per share will aggregate to ₹14.74 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker portion allocation of 1,68,000 shares. The market maker for the issue is Spread X Securities Ltd and they will provide two-way quotes to ensure liquidity on the counter post listing and low basis costs.
   
• The company has been promoted by Arvind Shah, Vinit Shah, Parul Shah and Chintan Shah. The promoter holding in the company currently stands at 100.00%. However, post the fresh issue of shares, the promoter equity holding share will reduce to 73.01%.
   
• The fresh issue funds will be used by the company for meeting its upcoming capex expenditure as well as for general corporate purposes Part of the monies raised will also go towards meeting the expenses of the issue.
   
• Beeline Capital Advisors Private Ltd will be the lead manager to the issue and Skyline Financial Services Private Ltd will be the registrar to the issue. The market maker for the issue is Spread X Securities Ltd.

IPO allocation and minimum lot size for investment

The company has allocated 5.13% of the issue size for the market makers to the issue, Spread X Securities Ltd. The net offer (net of market maker allocation) will be divided equally between the retail investors and the non-retail investors, comprising predominantly of the HNI / NII investors. The breakdown of the overall IPO of Arvind and Company Shipping Agencies Ltd in terms of the allocation to various categories are captured in the table below.

The minimum lot size for the IPO investment will be 3,000 shares. Thus, retail investors can invest a minimum of ₹135,000 (3,000 x ₹45 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 6,000 shares and having a minimum lot value of ₹270,000. 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.

Key dates to be aware of in the Arvind and Company Shipping Agencies Ltd IPO (SME)

The SME IPO of Arvind and Company Shipping Agencies IPO opens on Thursday, October 12th, 2023 and closes on Monday, October 16th, 2023. The Arvind and Company Shipping Agencies Ltd IPO bid date is from October 12th, 2023 10.00 AM to October 16th, 2023 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is October 16th, 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 Arvind and Company Shipping Agencies Ltd

The table below captures the key financials of Arvind and Company Shipping Agencies Ltd for the last 3 completed financial years.

Data Source: Company DRHP filed with SEBI

Here are some of the key takeaways from the financials of the company for the last 3 years.

• The revenue growth has been very rapid in the last 2 years, but as of FY21, the total revenues of the company were just to the tune of Rs53 lakhs. That raises the question of very slow growth after 34 years of being in existence.
   
• The net margins have been in the range of 33% to 35% on an average, which is considered very good for a company in this industry where operating costs tend to be quite high. Even the ROE ratio of over 30% is quite attractive. However, the spike in debt has been very sharp in the last 2 years and it remains to be seen how the cost of debt impacts the profits of the company.
   
• Being a capital heavy business, the asset turnover ratio or the asset sweating ratio tends to be low. However, in the case of this company, the asset turnover ratio is consistently below the 0.25 mark which is very low by any standards. That raises questions on how the debt would be serviced in the coming years and how ROE can expand?

The company has latest year EPS of ₹4.62 so the stock is available at a valuation of less than 10 times based on past earnings. That may be OK numerically, but it does not answer two questions. Firstly, why the company sales grew at such a slow pace for so many years since inception. Secondly, the low asset turnover and the high debt laces the company in a rather vulnerable situation. Investors must be cautious about the risks in the issue and take a call accordingly. There are too many red flags at this point of time.