What you must know about Dindigul Farm Product IPO?

About Dindigul Farm Product Ltd

Dindigul Farm Product Ltd was incorporated in the year 2010 and is engaged in the business of whole milk and skimmed milk processing. These go into the manufacture of various dairy ingredients like milk protein concentrates, skimmed milk powder, dairy whitener, whey protein concentrate, milk whey powder, unbranded cream, butter, and fat-filled powders for infant milk formula. The company has a processing unit in Dindigul in Tamil Nadu. Apart from the FSSAI and Export Import Council standards; Dindigul Farm Product Ltd also complies with Halal and Kosher standards. The company boasts of a network of more than 150 village collection centres, which offer direct access to more than 4,000 farmers and 50 dairy farms. The products of Dindigul Farm Product Ltd are sold under the brand names of ENNUTRICA and ActivDay. Currently, its products are sold across 15 states and also sold to 3 countries internationally. Dindigul Farm Product Ltd employs 101 personnel on its rolls.

Highlights of the Dindigul Farm Product IPO

Here are some of the highlights of the Dindigul Farm Product IPO on the SME segment of the Bombay Stock Exchange (BSE). 

•    The issue opens for subscription on 20th June 2024 and closes for subscription on 24th June 2024; both days inclusive.

•    The stock of Dindigul Farm Product I;PO 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 ₹51 to ₹54 per share. The final price will be discovered in this price band only.

•    Dindigul Farm Product IPO 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, Dindigul Farm Product Ltd will issue a total of 64,50,000 shares (64.50 lakh shares), which at the upper band IPO price of ₹54 per share aggregates to fresh fund raising of ₹34.83 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 64,50,000 shares (64.50 lakh shares) which at the upper band of the IPO price at ₹54 per share will aggregate to overall IPO size of ₹34.83 crore.

•    Like every SME IPO, this issue also has a market making portion with a market maker inventory allocation of 3,26,000 shares. Spread X Securities Private 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 R Rajasekaran, Rajadharshini Rajasekaran and Indrayani Biotech Ltd. The promoter holding in the company currently stands at 80.66%. However, post the fresh issue of shares in the IPO, the promoter equity holding share will get diluted to 59.36%.

•    The fresh issue funds will be used by the company towards proposed capital expenditure and also for meeting some of its working capital needs. Part of the funds will also be used for general corporate purposes. 

•    Beeline Capital Advisors Private Ltd will be the lead manager to the issue, and Link Intime India Private Ltd will be the registrar to the issue. The market maker for the issue is Spread X Securities Private Ltd.

The IPO of Dindigul Farm Product Ltd will be listed on the SME IPO segment of the BSE.

Dindigul Farm Product IPO – Key Dates

The BSE SME IPO of Dindigul Farm Product Ltd IPO opens on Thursday, 20th June 2024 and closes on Monday, 24th June 2024. The Dindigul Farm Product Ltd IPO bid date is from 20th June 2024 at 10.00 AM to 24th June 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is 24th 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 26th 2024, will be visible to investors under the ISIN Code – (INE0S6R01027). 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

Dindigul Farm Product Ltd has already announced the market maker allocation at 3,26,000 shares as inventory for market making. Share India Securities Ltd will be the market maker for the IPO. The breakdown of the overall IPO of Dindigul Farm Product Ltd in terms of allocation to various categories are captured in the table below.

The minimum lot size for the IPO investment will be 2,000 shares. Thus, retail investors can invest a minimum of ₹1,08,000 (2,000 x ₹54 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 ₹2,16,000. 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 Dindigul Farm Product Ltd. The company has reported numbers up to the close of fiscal year FY23 (Year ended March 2023); and for the 9 months of FY24 till December 2023.

Financial highlights: Dindigul Farm Product Ltd

The table below captures the key financials of Dindigul Farm Product 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 FY23 sales are nearly 67% higher than the FY21 sales. However, the company has made losses till the previous year, underlying the pressure on bottom lines till the last year. Since the company has been making losses till last year, many of the ratios like ROE and ROA may not add much value to the investor. 

The company has latest year EPS of ₹3.59 and we have not included the weighted  average EPS, since the growth has been quite steady and calibrated. The latest year earnings are being discounted by the IPO price of ₹34 per share at 9-10 times P/E ratio, which is fairly reasonable if you consider the steady growth and the turnaround margins of the company. Let us also look at how the picture changes if we extrapolate the FY24 numbers. The EPS for the first 9 months of FY24 stands at ₹4.09 per share and if that is annualized, it comes to ₹5.45 per share. This extrapolated FY24 price discounts the IPO price of ₹34 at a more sober P/E ratio range of 6-7X. 

The company also comes to the table with some qualitative advantages. Its large client base, exiting profile with clients and the service model is intrinsically likely to grow in the coming years. Above all, despite being a small company, its growth and margins are very steady at robust levels. The only area of uncertainty is the trajectory of earnings for next few quarters. 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. The pricing at the current juncture looks to be reasonable, especially if you look at the FY24 projected numbers for the sake of valuations.